Small Business Research Programs: Many Agencies Took Longer to Issue Small Business Awards than Recommended

Since the SBIR and STTR programs began in 1982 and 1992, respectively, federal agencies have awarded at least 162,000 contracts and grants totaling around $46 billion to help small businesses develop and commercialize new technologies. Eleven agencies participate in the SBIR program and five of them also participate in the STTR program. Each agency issues a solicitation requesting proposals at least once a year. Agencies then review proposal submissions and issue awards using grants or contracts. The SBIR and STTR policy directive recommends that most agencies issue awards no more than 180 calendar days from solicitation close.

The John S. McCain National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to report on the timeliness of agencies' SBIR and STTR proposal review and award issuance. This report examines the time agencies spend issuing SBIR and STTR awards and the factors that affect the time spent, among other things. Within the 11 agencies, GAO reviewed 28 component agencies that participate in these programs. GAO analyzed agency-provided award data from fiscal years 2016 to 2018 for 15,453 awards and interviewed officials from the Small Business Administration and 26 of the component agencies.

In fiscal years 2016 through 2018, agencies issued 11,710 of the 15,453 Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awards we reviewed (76 percent) within the recommended time period. However, component agencies varied in the percentage of awards that they issued within the recommended time (see figure).

Agency officials described a number of factors that can affect award issuance timelines, including:

Some agencies use cost reimbursement contracts, which require additional agency review under federal acquisition regulations.

Some contracting officers have limited expertise in issuing SBIR and STTR awards and their overall workloads can be heavy.

Small businesses may be slow to respond to agency requests for information, such as requests for information needed to meet government contracting requirements.

Congress established the Small Business Innovation Research (SBIR)  program in 1982 to enable federal agencies to support research and  development (R&D) projects carried out by small businesses. For  example, an SBIR award from the Department of Health and Human  Services helped a small business develop glasses that allow people with  color vision deficiency to see the full color palette, and this business has  made more than $20 million in annual sales, according to information on  the SBIR website. Congress established the related Small Business  Technology Transfer (STTR) program in 1992. The SBIR and STTR  programs are similar in that participating agencies identify topics and  make awards for R&D projects led by small businesses. The STTR  program further requires the small business to partner with a nonprofit  research institution, such as a college, university, or federally funded  research and development center. Each year, small businesses may  apply for SBIR and STTR awards to develop and commercialize  innovative technologies. The awards generally do not exceed $150,000  for the initial award and $1 million for subsequent follow-on awards.

Federal agencies with obligations of $100 million or more for extramural  R&D are required to participate in the SBIR program, and those with such  obligations of $1 billion or more are also required to participate in the  STTR program. Since the SBIR and STTR programs began, federal  agencies have awarded at least 162,000 contracts and grants totaling  around $46 billion to small businesses to help them develop and  commercialize new technologies. According to the Small Business  Administration (SBA), which oversees the SBIR and STTR programs, 11  federal agencies participated in the SBIR program in fiscal year 2016 and  obligated around $2.4 billion for SBIR awards, and five agencies also  participated in the STTR program in fiscal year 2016 and obligated  around $314 million for STTR awards, the most recent year for which  data are available.

Within these 11 agencies, a number of component agencies provide  SBIR or STTR awards. For example, within the Department of Defense,  the Air Force and Navy provide SBIR and STTR awards, as do nine other  component agencies within the department. In addition, the Army has  separate program offices for its SBIR and STTR awards. Similarly, the  Department of Commerce has two component agencies that provide  SBIR and STTR awards—the National Institute of Standards and  Technology and the National Oceanic and Atmospheric Administration.  Table 1 lists the 28 component agencies we reviewed.

SBA provides policy directives on the general operation of the SBIR and  STTR programs. According to the SBA policy directive for SBIR and  STTR, at least once a year, each participating agency issues a solicitation  requesting proposals on a variety of topics. Each agency reviews the  proposals it receives to determine which small businesses should receive  awards, then negotiates contracts, grants, or cooperative agreements to  issue the awards to the selected small businesses. The Small Business  Act and SBA directive state that most agencies are required to review  proposals and to notify applicants of the agency’s decision no more than  90 calendar days after the closing date of the solicitation. Further, the  directive recommends that most agencies issue awards—that is, finalize  the funding agreement with the selected small businesses—no more than  180 calendar days after the closing date of the solicitation. According to  an SBA official, these time periods apply to both the initial phase I award  and the follow-on phase II awards.

The John S. McCain National Defense Authorization Act for Fiscal Year  2019 included provisions requiring the Department of Defense to institute  a pilot program to reduce the award issuance time for SBIR and STTR  programs. The Act also included provisions for GAO to report annually  for 4 years on the timeliness of agencies’ SBIR and STTR proposal  review and award issuance, and to identify best practices for shortening  proposal review and award times, among other things. This report—the  first of the annual reports required by the act—covers fiscal years 2016  through 2018 and describes: (1) the amount of time agencies spent  reviewing SBIR and STTR proposals and notifying awardees, and the  factors that affect the time spent; and (2) the amount of time agencies  spent issuing SBIR and STTR awards, and the factors that affect the time  spent.

To describe the time agencies spent reviewing proposals and issuing  awards, we collected information on awards made by 28 component  agencies from fiscal years 2016 through 2018, the 3 most recent years for  which data were available. For every award issued in these years, we  asked each component agency to report certain dates, including the  proposal submission date, the solicitation close date, the date the  awardee was notified that they were selected for an award, the date the  award was issued, and the award’s period of performance—the period of  time during which the awardee is expected to complete the award  activities. We calculated the time spent reviewing a proposal and  notifying the awardee starting from the solicitation close date and ending  at the notification of the awardee. We calculated the time spent issuing an  award starting from the solicitation close date and ending at either the  award issuance date or the first day of the period of performance if the  issuance date was not available.

We took several steps to assess the reliability of the data provided. First,  we evaluated the data for potential outliers by looking for awards with  particularly long or short notification or issuance periods. We also looked  for potential duplicates by identifying awards with identical award  numbers. We then asked the component agencies to review the data on  these specific awards and make any necessary corrections, which we  then included in our data. In addition, we compared our data for fiscal  year 2016 awards to information in SBA’s fiscal year 2016 annual report  to Congress on the SBIR and STTR programs, the most recent report  available. To verify the accuracy of the data provided, we also  compared the dates reported by each of the component agencies to  dates in grant or contract documents, emails, and other relevant agency  documentation—for between two and six awards per component  agency—and assessed any discrepancies. After updating the data as  needed based on these steps, we used the resulting data set of 15,453  awards to calculate the proposal review and notification time and award  issuance time for each award. As part of our data collection, we also  asked each component agency about the processes they used to record  the data and to provide it to us. We found the data to be sufficiently  reliable for the purpose of describing the time spent reviewing proposals  and issuing awards at each component agency.

We performed additional analysis to corroborate our proposal review and  notification time and award issuance time results and found that they  were robust when controlling for selected characteristics. We created  regression models of notification and issuance times and, using these  models, we estimated how awards’ timeliness varied across five factors:  the dollar value of each award, whether each award was phase I or phase  II, the award’s fiscal year, whether each award was through the SBIR or  STTR program, and each award’s type of grant or contract. Further, we  used the model to estimate how mean notification or issuance times  (reported below) changed with interagency differences in these factors.  The models’ timeliness predictions for a theoretical award with  government-wide-average characteristics were generally quite similar to  the actual mean at the agency. For example, for agencies with a mean  issuance time that was longer than recommended, the model almost  always predicted that the agency would also take longer than the  recommended period to handle an award with government-wide-average  characteristics. These results suggest that factors in addition to the five  that we modelled explain differences in review time.

To describe the factors that affect the time agencies spent reviewing  proposals and issuing awards, we interviewed officials at 24 of the 28  component agencies and received written responses to our questions  from two other offices. These officials included the program manager of  the SBIR or STTR program, and in some cases also included officials  from the component agency’s contracting or grants management offices.  We also interviewed an official from SBA responsible for overseeing the  SBIR and STTR programs. We reviewed their responses and  summarized the factors they identified. We did not evaluate the effect or  relative importance of the factors on the amount of time spent reviewing  proposals and issuing awards.

We conducted this performance audit from February 2019 to September  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.

Timeliness of SBIR and STTR Proposal Review and Notification

Overall, component agencies reviewed proposals and notified awardees  within the required time for 12,890 of the 15,453 SBIR and STTR awards  that we reviewed (84 percent), for fiscal years 2016 through 2018. The  Small Business Act and SBIR/STTR policy directive require most  agencies notify applicants of the agency’s decision within 90 calendar  days and require NIH and NSF do so in 1 year. Agencies notified  awardees after the required time period for 2,533 of 15,453 awards (16  percent). Three of the 28 component agencies met the notification  requirement for every award in the data we reviewed, and nine additional  component agencies did so for at least 90 percent of their awards. The  remaining 16 component agencies met the notification requirement for  less than 90 percent of their awards. Table 2 lists the mean and median  notification times and the percentage of awardees notified within the  required time period for each component agency.

Some notifications occurred within days after the required time period,  while others occurred months later. For example, all of the notifications by  the Department of Education from fiscal year 2016 through 2018 that took  longer than 90 days occurred in 91 days. Department officials attributed  the one day difference to interpreting the 90-day requirement as a 3- month requirement. Similarly, all of the notifications for Army STTR  awards that occurred after the 90-day requirement occurred within 92  days. Of the 2,533 awards with notifications after the required time,  notifications occurred on average about 1 ½ months later.

During the 3 fiscal years that we reviewed, some component agencies  had substantial changes from year to year in the percentage of awardees  that they notified within the required time period, while other component  agencies consistently notified about the same percentage of awardees.  For example, the Department of Energy’s Office of Science and the Army  SBIR program each had a single fiscal year during which they notified  less than 50 percent of awardees within the required time period,  substantially less than during the other fiscal years we examined. Table  3 describes the percent of awardees notified within the required time by  each component agency for each of the 3 fiscal years we examined.

Agency officials described several factors that affect the time spent  reviewing proposals and notifying awardees, including (1) the availability  of reviewers, (2) the number of proposals to review, and (3) other agency- specific factors.

Availability of reviewers. Officials from some component agencies we  interviewed said the availability of agency staff or external reviewers  affected the time they spent reviewing proposals. For example, USDA  officials told us that the agency cannot notify awardees within 90 days  because they need additional time to identify and recruit experts for their  external peer review system. USDA officials compared their review  process to that of the NSF and NIH, the two agencies that are directed to  complete proposal review and notification within 1 year. Similarly, Navy  officials said that the availability of reviewers was the biggest variable in  completing their proposal review and notification process. These  reviewers are Navy employees who contribute part of their time to  reviewing SBIR and STTR proposals while continuing to perform their  regular duties. According to Navy officials, although they give reviewers  deadlines based on the number of proposals they have to review,  conflicts with their regular duties or higher priority tasks may cause  reviewers to miss their deadlines. In contrast, Department of Education  officials said that they identify and train reviewers before the agency  receives proposals so that the reviews may begin as soon as possible.

Other agencies, however, may not know what areas of expertise  reviewers will need until the agency has examined the proposals it  received.

Number of proposals. Officials from some component agencies we  interviewed said the number of proposals they receive affected the time  spent reviewing proposals and notifying awardees. For example, officials  from the Department of Transportation said that the number of proposals  they receive can range between two and 40, which makes it difficult to  predict the workload of agency evaluators who perform the proposal  reviews. Similarly, National Institute of Standards and Technology officials  said that the number of proposals they receive fluctuates from year to  year. Because agencies must review all proposals that meet the minimum  requirements, an increase in the number of proposals directly increases  the workload of proposal reviewers.

Other agency-specific factors. Some component agency officials  identified factors specific to their agency or process as factors affecting  the time needed. For example:

Two component agencies within the Department of Health and  Human Services—the Centers for Disease Control and Prevention  (CDC) and Food and Drug Administration (FDA)—notified none of  their awardees within the required time in fiscal years 2016 through  2018. CDC and FDA participate in the solicitation and review process  led by the NIH. However, while the NIH has 1 year to notify awardees,  these agencies are required to notify awardees within 90 calendar  days. CDC officials said that participating in the longer NIH program is  more efficient than creating their own review process and allows them  to leverage additional programs at NIH that support small business  awardees.

Environmental Protection Agency officials told us that their review  process includes three consecutive reviews, which leads the agency  to regularly request waivers to exceed the 90-day notification  requirement. These reviews include an administrative review for  responsiveness to the solicitation, an external peer review process,  and an internal review by the SBIR program office.

Some agency officials also identified continuing resolutions,  sequestration, or government shutdowns as factors that could slow  proposal review. Proposal review and notification activities could be  affected because the availability or amount of funds for agency  activities is uncertain in these instances. For example, a Defense  Microelectronics Activity official told us that their agency generally  completes its proposal review process within 90 days, but does not  notify awardees until it has determined funding availability for awards  later in the fiscal year.

National Institute of Standards and Technology officials described a  delay notifying one awardee, a replacement awardee, due to the initial  awardee being determined ineligible during a pre-award assessment.  The agency made a replacement selection immediately, but this  replacement awardee was notified approximately 20 days after the  90-day requirement.

Timeliness of SBIR and STTR Award Issuance

Overall, component agencies issued 11,710 of the 15,453 awards we  reviewed (76 percent) within the recommended time period, for fiscal  years 2016 through 2018. The SBIR/STTR policy directive recommends  that most agencies issue an award within 180 days and recommends that  NIH and NSF do so in 15 months. Agencies issued 3,743 of the 15,453  awards (24 percent) after the recommended time period. Three of 28  component agencies issued every award in the data we reviewed within  the recommended time, and five additional component agencies did so  for at least 90 percent of their awards. The remaining 20 component  agencies issued less than 90 percent of their awards within the  recommended time period. For the 3,743 awards that agencies issued  after the recommended time period, the average award was issued about  two and a half months after the recommended time. Table 4 lists the  mean and median award issuance times and the percent of awards  issued within the recommended time for each component agency.

During the 3 fiscal years that we reviewed, some component agencies  had substantial changes from year to year in the percentage of awards  they issued within the recommended time period, while other component  agencies consistently issued about the same percentage of awards within  the recommended time period. For example, the Department of Energy’s  Advanced Research Projects Agency-Energy issued no awards within the  recommended time in each of the three years we examined. Table 5  describes the percent of awards issued within the recommended time  period by each component agency for each of the 3 fiscal years we  examined.

Agency officials described several factors that increased the time spent  issuing awards, including (1) additional time needed to issue certain types  of contracts, (2) the availability of grants and contracting officers, (3)  delays coordinating among agency officials, (4) the responsiveness of  awardees, and (5) the availability of funding for the awards.

Cost reimbursement contracts. Officials from some component  agencies we interviewed said that the contract type was a factor that  affected the time needed to issue SBIR and STTR awards. Specifically,  officials said cost reimbursement contracts took longer to issue because  of the need to review the awardee’s accounting system in accordance  with federal acquisition regulations. For example, officials from the  Defense Advanced Research Projects Agency (DARPA) said cost  reimbursement contracts routinely take more time to award than fixed- price contracts because of this accounting system review. According to  DARPA officials, this review can add 45 days or more to the awards  process. In February 2019, we found that the Department of Defense  does not have a mechanism to monitor and ensure that contractor  business system reviews and audits are conducted in a timely manner  and recommended that the department develop such a mechanism.

Our analysis of the SBIR and STTR award data confirmed that  component agencies spent more time issuing awards identified as cost  reimbursement contracts than issuing fixed price contracts. We found that  SBIR and STTR awards identified as cost reimbursement contracts in the  fiscal year 2016 through 2018 data took significantly longer to issue than those identified as fixed-price, as shown in figure 1. Fixed-price contracts  took on average 152 days and cost reimbursement contracts took 231  days (79 days longer). Cost reimbursement contracts also took on  average 40 days longer than contracts that were not specified as fixed or  cost reimbursement.

Availability of grants or contracting officers. The availability or  experience of agency staff to negotiate the contract or grant can be a  factor, according to some component agency officials. First, some officials  said limited availability of grants or contracting officers was a factor in the  time to issue awards and may result in delays. For example, officials from  both Army program offices said that the workload for contracting officers  is high, and SBIR and STTR awards are part of a larger contracting  backlog. Similarly, officials from the National Institute of Standards and  Technology and National Oceanic and Atmospheric Administration also said that the availability of grants and contracting officers is a pervasive  issue for federal agencies that can affect award timeliness. Second,  officials from some component agencies said that the contracting officer’s  level of experience with small business awards affects the time needed to  issue SBIR and STTR awards.

Coordination among agency officials. Air Force officials said that the  need for coordination among agency officials, such as between the  contracting officer and proposal evaluators, can create delays. Because  the proposal review and award process can require coordination among  multiple officials who are not always immediately available, delays may  occur as one official waits for input or information from another. Beginning  in fiscal year 2018, the Air Force made changes to its proposal review  and award process for a subset of awards that included scheduling  dedicated time for reviewers, contracting officers, and other agency  officials to jointly evaluate proposals and process awards. This change  guaranteed the availability of agency officials and reduced the time  needed for coordination among these officials. Overall, it allowed the  agency to issue awards within a few days or weeks. According to agency  officials, the Air Force awarded about 150 awards in 2018 through this  process and they expect about one-third of Air Force awards in fiscal year  2019 and half of awards in fiscal year 2020 will use this expedited  process.

Responsiveness of awardees. Some component agency officials said  that the responsiveness of the small business was a factor in delays. For  example, officials from USDA said that the majority of SBIR grantees at  USDA are first-time grantees who have never worked with the federal  government, and this can extend the time it takes to issue the award. In  order to receive an SBIR or STTR award, the small business must,  among other things, submit a certification that it meets size, ownership,  and other requirements. Delays in providing these certifications or other  information required by the awarding agency can therefore delay award  issuance. In our July 2018 report that reviewed DOD’s weapon-systems- related contracts awarded from fiscal year 2014 through fiscal year 2016,  contracting officials stated that quicker contractor responses to requests  for additional information could help reduce the time between when a  solicitation is issued to when a contract is awarded.

Availability of funding. Some component agency officials said that  delays in determining the amount of funding available for small business  awards due to continuing resolutions or delays in intradepartmental fund  transfers may delay the issuance of awards. For example, NASA officials  said that they estimate the agency’s R&D budget at the start of the fiscal  year to calculate the amount required for SBIR and STTR awards.  According to these officials, if NASA is operating under a continuing  resolution at the start of the fiscal year, the estimate may be smaller than  the final appropriated amounts. In this case, NASA would go back to its  proposals to make additional awards from the pool of proposals that were  rejected under the original estimate, and this would lead to longer  issuance times for some awards.

We provided a draft of this report to SBA and the 11 agencies that  participated in the SBIR and STTR programs in fiscal years 2016 through  2018 for their review and comment. The SBA, Department of Defense,  and Department of Education provided written comments that are  reproduced in Appendix II, III, and IV. In addition, the Department of  Energy, the NIH within the Department of Health and Human Services,  Department of Transportation, and the National Institute of Standards and  Technology within the Department of Commerce provided technical  comments, which we incorporated as appropriate. The remaining  agencies told us they had no comment. In its formal comments, the  Department of Education stated that it has taken steps to ensure that  future awardees will be notified within the required period.

In their comments, SBA and the Department of Defense suggested phase  I and II awards should be evaluated separately in future reports. In this  report, we combined phase I and II awards because we did not find a  statistically significant difference in notification time between phase I and  II awards in the fiscal year 2016 through 2018 data that we examined.  However, some analyses showed that phase II awards took longer to  issue. We may further examine differences between phase I and phase  II awards in subsequent reports.

SBA also described the importance of minimizing delays between phase I  and phase II awards. We did not evaluate the time between phase I and  subsequent phase II awards in this report, but agree that the time  between awards may be of interest in future reports because, as noted by  SBA, the time between awards may affect small businesses' ability to  retain key personnel. SBA also sought explanations for various dates and  figures used in our analysis and we updated the report to include the  definitions used when collecting award data and to describe our figures in  more detail.

The Department of Defense also stated that the SBIR and STTR policy  directive does not explicitly include phase II awards in its 90 and 180-day  timeliness requirements. However, we confirmed with SBA—the agency  that issues the directive—that the 90-day requirement for notification of  selection and the 180-day recommendation for award issuance apply to  both phase I and phase II awards. The Department of Defense further  stated that subsequent phase II awards could occur several years after  the end of the initial phase II award and should not be included in the  analysis of phase II awards. In this report, we took steps to eliminate  these outliers from the data.

We are sending copies of this report to the appropriate congressional  committees, the Acting Administrator of the SBA, 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) 512-6888 or neumannj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

Appendix I: Timeliness of Agencies’ Small Business Awards

This appendix describes the awards made by agencies participating in  the Small Business Innovation Research (SBIR) and Small Business  Technology Transfer (STTR) programs, based on the data provided to  GAO for fiscal years 2016 through 2018.

These data include figures showing the (1) proposal review and  notification time, (2) award issuance time, and (3) distribution of awards  by fiscal year and phase. The fiscal year and phase figure describes the  number of phase I and phase II awards issued in fiscal years 2016  through 2018 and is based on the first year of the award activities. For  example, if an agency obligated funding to a phase II award in fiscal  years 2017 and 2018, the award is counted among the fiscal year 2017  phase II awards.

Air Force participated in SBIR and STTR.

Small Business Award Timeliness (Fiscal Year 2016-2018 Awards)

Office of Science participated in SBIR and STTR.

In addition to the contact named above, Rob Marek (Assistant Director),  Tind Shepper Ryen (Analyst-in-Charge), Nora Adkins, David Aja, Jenny  Chanley, Robert Letzler, Anika McMillon, Amanda Postiglione, and Ben  Shouse made key contributions to this report.

Since 1982, federal agencies have given $46 billion to small businesses to help them develop and market new technologies (such as robotic vacuum cleaners and personal genetic testing kits). Businesses apply for these awards, and agencies generally aim to make awards within 180 days after the application deadline.

We reviewed 15,453 awards made over 3 years: 76% were made on time. However, the 28 agencies that made the awards varied widely on timeliness—some made 100% on time and some made 0%.

Agencies cited factors that slowed the process, such as heavy workloads for reviewers and slow responses to requests for more information.


Medicaid Eligibility: Accuracy of Determinations and Efforts to Recoup Federal Funds Due to Errors

In fiscal year 2018, Medicaid covered approximately 75 million individuals at an estimated cost of $629 billion, $393 billion of which were federal funds. Medicaid eligibility is governed by a network of federal and state laws and regulations. In assessing eligibility for Medicaid, states must determine whether applicants meet eligibility criteria, such as financial and citizenship requirements. The accuracy of eligibility decisions has implications for federal and state spending.

The Patient Protection and Affordable Care Act made significant changes to Medicaid eligibility rules beginning in 2014, including new ways of calculating income and new requirements related to electronically verifying applicants' information. Yet, little is known about the accuracy of states' Medicaid eligibility determinations since these changes were implemented.

GAO was asked to review Medicaid eligibility determinations. This report describes, among other things, what is known about the accuracy of Medicaid eligibility determinations, and CMS's efforts to recoup funds related to eligibility errors. GAO reviewed 47 state and federal audits of Medicaid eligibility determinations across 21 states published between 2014 and 2018. GAO also reviewed relevant federal laws and regulations, and interviewed CMS officials.

The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

States are responsible for determining applicants' eligibility for Medicaid, including verifying eligibility at application, redetermining eligibility, and disenrolling individuals who are no longer eligible. The Centers for Medicare & Medicaid Services (CMS) oversees states' Medicaid eligibility determinations. CMS did not publish an updated national Medicaid eligibility improper payment rate from 2015 through 2018 as states implemented the Patient Protection and Affordable Care Act. CMS released an updated rate in November 2019 that reflected new information on eligibility errors from 17 states.

In lieu of complete and updated data, GAO reviewed 47 state and federal audits published between 2014 and 2018 related to 21 states' eligibility determinations.

The identified accuracy issues did not always result in erroneous eligibility determinations. For example, some audits found

applicants were determined eligible based on incomplete financial information, but when the audits reviewed additional information they found that the applicants still would have been eligible for Medicaid; and

eligibility determinations complied with state policies and federal requirements, but noted that changes in state practices—such as using additional data sources to verify applicant information or checking sources more frequently—could improve eligibility determinations.

While CMS is generally required to disallow, or recoup, federal funds from states for eligibility-related improper payments if the state's eligibility error rate exceeds 3 percent, it has not done so for decades, because the method it used for calculating eligibility error rates was found to be insufficient for that purpose. To address this, in July 2017, CMS issued revised procedures through which it can recoup funds for eligibility errors, beginning in fiscal year 2022. In addition, the President's fiscal year 2020 budget request includes a legislative proposal to expand the agency's authority to recoup funds related to eligibility errors. During this period of transition, federal and state audits will continue to provide important information about the accuracy of states' eligibility determinations.

In fiscal year 2018, Medicaid covered approximately 75 million individuals  at an estimated cost of $629 billion, of which $393 billion was financed by  the federal government. Eligibility for the Medicaid program is governed  by a combination of federal and state laws and regulations. As the day-to- day administrators of the Medicaid program, states are responsible for  assessing applicants’ eligibility for Medicaid. The Centers for Medicare &  Medicaid Services (CMS)—within the Department of Health and Human  Services (HHS)—is responsible for overseeing states’ compliance with  Medicaid eligibility requirements, including recouping funds spent in error,  as the accuracy of states’ determinations can have significant implications  for federal and state spending.

To qualify for Medicaid coverage, individuals generally must fall within  certain categories or populations, and must meet the eligibility criteria  associated with an eligibility group that is covered by the state.  Depending on the group, individuals must meet certain financial eligibility  criteria, such as having income below specified levels. Individuals must  also meet nonfinancial criteria such as citizenship and residency  requirements. Individuals may meet the criteria for more than one  category and eligibility group; that is, they could have more than one  potential basis for their eligibility. For example, a child who is pregnant  could meet the criteria applicable to children and those applicable to  pregnant women. In such cases, a state enrolls the individual under one  basis of eligibility following its procedures.

In recent years, there have been changes to Medicaid eligibility rules and  CMS’s oversight of eligibility determinations. The Patient Protection and  Affordable Care Act (PPACA) made changes to Medicaid eligibility rules,  providing states the option to expand eligibility to certain nonelderly  adults, as well as requiring changes to Medicaid eligibility processes  beginning in 2014. For example, PPACA specified a new way for states  to calculate income for most nonelderly, nondisabled Medicaid applicants  and included requirements related to electronic verification of Medicaid  applicants’ information. Given the changes required by PPACA, CMS  suspended its programs for measuring Medicaid eligibility errors—such  as the enrollment of ineligible individuals and the improper denial of  eligible individuals—for fiscal years 2015 through 2018. Thus, less is  known about the accuracy of states’ Medicaid eligibility determinations  during that time period. You asked us to review states’ Medicaid eligibility  determinations. In this report we describe  1.  how selected states decide the basis of eligibility for individuals  eligible for Medicaid under more than one basis;  2.  what is known about the accuracy of Medicaid eligibility  determinations and selected states’ processes to improve the  accuracy of determinations; and  3.  CMS efforts to recoup funds related to eligibility errors.

To describe how selected states decide the basis of eligibility for  individuals eligible for Medicaid under more than one basis, we selected a  nongeneralizable sample of five states: Maryland, New Mexico,  Oklahoma, Tennessee, and Virginia. These states were selected to  obtain variation in program characteristics, including whether the state  opted to expand Medicaid eligibility as a result of PPACA; had integrated  all bases of eligibility under a single eligibility system; and whether the  state allowed CMS, through its Federally Facilitated Exchange, to  determine Medicaid eligibility on its behalf. For the selected states, we  reviewed documentation of their policies and procedures, eligibility  system rules, and Medicaid application questions. We also interviewed  officials from each selected state’s Medicaid agency and, if applicable,  partner agencies responsible for eligibility determinations. For three of the  five selected states, we also interviewed eligibility workers who process  applications and provide information to individuals applying for Medicaid.

To describe what is known about the accuracy of Medicaid eligibility  determinations, we identified and reviewed state and federal audit  findings related to the accuracy of states’ Medicaid eligibility  determinations. We focused on audits of eligibility determinations  published from 2014 through 2018. In total, we identified 47 audits across  21 states by state audit organizations and HHS’s Office of Inspector  General (OIG). Audits in our scope included those either specifically or  partly focused on states’ Medicaid eligibility determinations, including  those conducted under the Single Audit Act. To describe selected states’  processes to improve the accuracy of determinations, we reviewed  relevant federal laws and regulations that specify requirements for  conducting Medicaid eligibility determinations, and interviewed officials  from CMS and the five selected states.

To describe CMS efforts to recoup funds related to eligibility errors, we  reviewed federal laws and regulations related to CMS’s authority to  recoup federal funds, in addition to a proposal in the President’s fiscal  year 2020 budget request related to the agency’s recoupment authority.  We also obtained information from CMS about its reviews of the accuracy  of states’ eligibility determinations and interviewed CMS officials about  their efforts.

We conducted this performance audit from July 2018 to January 2020 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.

States have flexibility within broad federal requirements to design and  implement their Medicaid programs. For example, while states must cover  certain mandatory groups and benefits, they have the option to cover  certain other groups of individuals and benefits. States’ Medicaid plans  outline the services provided, the populations covered by their programs,  and how they implement and comply with other federal requirements.  States share responsibility for oversight of Medicaid eligibility with CMS.

States are primarily responsible for assessing applicants’ eligibility for,  and enrolling eligible individuals into, Medicaid. These responsibilities  include verifying individuals’ eligibility at the time of application, performing redeterminations of eligibility, and promptly disenrolling  individuals who are no longer eligible. In verifying individuals’ eligibility,  states must assess specified financial and nonfinancial information.

Financial: Individuals applying for Medicaid generally must have an  income below a certain limit. PPACA requires states to calculate the  income for most nondisabled, nonelderly applicants using a uniform  method based on modified adjusted gross income (MAGI), which is  derived from a federal tax-based definition of income. States have  more flexibility in determining how to calculate incomes for individuals  whose eligibility is determined on the basis of age or disability,  because their income is not calculated using MAGI-based methods.  For example, states may disregard certain types or amounts of  income for these MAGI-exempt populations. Additionally, individuals  eligible on the basis of age or disability generally must also have  assets—cash or real or personal property that are owned and can be  converted to cash—below specified standards that vary by state.

Nonfinancial: Individuals applying for Medicaid must also satisfy  certain nonfinancial criteria. For example, to be eligible for Medicaid  individuals generally must be residents of the state in which they are  applying and must be either citizens of the United States or certain  noncitizens, such as lawful permanent residents.

States generally have flexibility in the sources of information they use to  verify applicants’ financial eligibility and citizenship or immigration status.  However, to the extent practicable, states must use third party sources of  data for these verifications prior to requesting documentation from the  applicant. When data from reliable third party sources are inconsistent  with information from an application, the state must have processes in  place to resolve these inconsistencies, such as through requesting  additional documentation or accepting the applicant’s attestation.  Additionally, states may accept self-attestation for some eligibility criteria,  such as residency in the state and household composition (which is used  in determining if applicants’ income is below the limit).

Once a state determines that an individual meets relevant financial and  nonfinancial eligibility criteria, the state enrolls the individual into Medicaid  under one basis of eligibility. Examples of bases of eligibility include those  applicable to children, pregnant women, individuals eligible for  Supplemental Security Income (SSI)—a program that provides cash  assistance to low-income adults and children with disabilities—and other  low-income adults under age 65 in states that expanded their Medicaid  populations under PPACA. (See table 1.)

Since individuals may meet the criteria for more than one category and  eligibility group, they could have more than one basis of eligibility. For  example, a child who is pregnant could meet the criteria applicable to  children and those applicable to pregnant women. However, a state  would enroll each individual under one basis of eligibility. CMS  regulations specify that when states determine applicants eligible based  on MAGI criteria, they must notify these individuals of the benefits and  services available through any MAGI-exempt bases of eligibility for which  they may qualify, in order to provide the individual information about  whether to request a MAGI-exempt eligibility determination. However,  CMS officials explained that they advise states that they do not need to  inform applicants of benefits and services under other eligibility groups if  there is no meaningful difference in the benefits or cost-sharing that the  individual would receive under one basis compared to another. CMS  officials also noted that they have provided further guidance to states on  assigning bases of eligibility, including that if an individual meets the  criteria for more than one basis, the state should enroll the person into the  most beneficial coverage in terms of factors such as the benefit package  and out-of-pocket costs.

In 2014, CMS issued a framework based on federal rules for states to use  in developing their systems to assess individuals’ bases of eligibility.  The framework describes a hierarchy for states to use in developing their  eligibility systems that begins with bases related to receipt of other federal  benefits, such as SSI and federally funded foster care and adoption  assistance, which often result in automatic eligibility for Medicaid.  Following these bases of eligibility, states are to assess eligibility for  bases subject to MAGI-based income rules, and should first evaluate for  mandatory coverage before evaluating for optional coverage. Federal  rules allow for some exceptions to this sequence, such as when an  individual who may be eligible for bases subject to MAGI-based income  rules requests consideration under a MAGI-exempt basis to access  certain additional benefits, such as long-term services and supports.

Federal and State Oversight of Eligibility Determinations

CMS has historically operated two distinct, but complementary programs  to oversee states’ eligibility determinations in the Medicaid program.

The Medicaid Eligibility Quality Control (MEQC) program, which is  implemented by states and overseen by CMS, was created in 1978 to  monitor the accuracy and timeliness of Medicaid eligibility  determinations in order to avoid inappropriate payments and eligibility  decision delays. MEQC was also designed to identify methods to  reduce and prevent errors related to incorrect eligibility determinations  by having states review sample cases to independently verify  eligibility criteria and then report the results to CMS.

The Payment Error Rate Measurement (PERM) program is CMS’s  process to estimate the national Medicaid improper payment rate in  accordance with the Improper Payments Information Act of 2002, as  amended, and Office of Management and Budget guidance. To  calculate the Medicaid improper payment rate through PERM, CMS  computes an annual rolling average of improper payment rates across  all states based on a 3-year rotation cycle of 17 states each year.  PERM is comprised of three components, including one that  measures errors in state determinations of Medicaid eligibility.

For fiscal years 2015 through 2018, CMS suspended MEQC and the  eligibility component of PERM to provide states with time to adjust to  eligibility process changes in PPACA; in its place, CMS required states to  implement pilots to assess the accuracy of their eligibility determinations.  As a result, CMS did not publish an updated national estimate of improper  payments due to Medicaid eligibility errors for fiscal years 2015 through  2018. Eligibility reviews under PERM, which are conducted by a federal  contractor, resumed in July 2017 for fiscal year 2019. In November  2019, CMS released an updated national estimate of Medicaid eligibility  errors, which reflected results of the first 17 states reviewed under the  new PERM process. Going forward, states are to resume MEQC  reviews in the 2 years between their PERM reviews. The MEQC reviews  will focus, in part, on specific areas of improvement for each state. For  example, states might choose to focus on specific populations, such as  whether pregnant women were assigned to the appropriate eligibility  group, or specific processes, such as asset verification.

The Medicaid statute includes a provision for CMS to recoup, or disallow,  federal funds related to erroneous payments for ineligible individuals and  overpayments for eligible individuals. The provision generally requires  CMS to recoup funds from states for eligibility-related improper payments  if the state’s eligibility error rate exceeds 3 percent. CMS has general  authority to recoup funds from states when it determines that an  expenditure of federal funding is not an allowable expense; according to  CMS, however, this general authority does not apply to eligibility-related  errors, given the separate specific statutory authority. Therefore, it is the  view of the agency that CMS cannot recoup funds from states whose  eligibility-related improper payment rate is below the 3 percent threshold.

In addition to the PERM and MEQC oversight, state auditors review  Medicaid eligibility determinations, including through audits conducted at  the auditors’ initiative and as part of audits required by provisions of the  Single Audit Act of 1984. To guide auditors in performing reviews under  the Single Audit Act, the Office of Management and Budget issues a  document referred to as the Compliance Supplement, which identifies  important compliance requirements that the federal government expects  to be considered as part of such an audit. Beginning in fiscal year 2014,  the Compliance Supplement directed auditors to forgo review of eligibility  determinations for individuals whose income is calculated based on  MAGI. The supplement noted that testing was being performed under  Medicaid eligibility review pilots, which would serve as CMS’s oversight  during the initial years of PPACA implementation when the MEQC and  the eligibility component of PERM were suspended. In June 2019, the  Office of Management and Budget issued the 2019 Compliance  Supplement that included changes to permit state auditors to test  eligibility determinations of both MAGI and MAGI-exempt populations to  ensure enrollees qualify for the Medicaid program and are in the  appropriate enrollment category.

Basis of Eligibility Decisions Can Vary Among Selected States despite Consideration of Similar Factors

The five selected states in our review considered similar factors when  ranking the bases of eligibility to which individuals are assigned—such as  bases related to children, pregnant women, or disabled individuals—but  the resulting basis of eligibility in which individuals were placed could  vary. Each of the five states ranked bases of eligibility by comparing how  beneficial they were for enrollees across several key factors, and ordered  the bases into a hierarchy starting with the most beneficial, according to  officials. The states’ eligibility systems were programmed to apply these  hierarchies in deciding each individual’s basis of eligibility; when an  individual was potentially eligible for more than one basis of eligibility, the  system would assign them to the basis highest in the ranking.

The key factors the selected states considered in ranking the bases of  eligibility, according to state officials, included (1) whether eligibility was  related to the receipt of benefits from other programs, (2) the services  provided through the benefit package, and (3) the financial implications  for the individual.

Eligibility related to other programs. The selected states ranked  bases of eligibility associated with enrollment in other federal and  state assistance programs at or near the top of their hierarchies. For  instance, eligibility associated with receipt of SSI was generally at the  top of the states’ hierarchies, and eligibility associated with receipt of  federal foster care and adoption assistance benefits was ranked  above other bases for which a child might be eligible.

Services included in the benefit package. Bases of eligibility that  conveyed additional benefits, such as long-term services and  supports, were ranked higher. Similarly, bases that offered limited  benefits, such as only covering family planning services or assistance  with cost-sharing for Medicare beneficiaries (i.e., the Medicare  Savings Program) were ranked lower in the selected states’  hierarchies.

Financial impact. The selected states ranked bases of eligibility  lower if they were associated with additional financial requirements for  the individual, such as asset tests as a condition of eligibility, or out- of-pocket costs once enrolled. For example, bases of eligibility that  required applicants to make copayments to receive certain services,  or to pay a monthly premium, were ranked lower than those without  such costs.

Although the selected states considered similar factors when deciding an  individual’s basis of eligibility for Medicaid, a similarly situated individual  could be enrolled under a different basis of eligibility in one state versus  another state. Decisions varied across states, in part, because of  differences in (1) how states factored in the length of the enrollment  period; and (2) the degree to which states’ eligibility systems and  processes were integrated.

Length of the enrollment period. Officials in selected states  considered the length of the enrollment period when deciding bases of  eligibility for certain populations, such as pregnant mothers (pregnant  women who were also eligible as caretakers of dependent children).  Pregnant women who are eligible for Medicaid have continuous  eligibility, which guarantees enrollment through at least 60 days  postpartum regardless of income changes. For this reason, Oklahoma  enrolled pregnant mothers under a basis of eligibility applicable to  pregnant women. In contrast, Virginia enrolled pregnant mothers  under a basis of eligibility applicable to caretakers, because it has a  12-month enrollment period. However, pregnant women have  continuous eligibility through at least 60 days postpartum regardless  of income changes or whether they are enrolled as caretakers or on  some other basis. As such, if a pregnant woman enrolled as a  caretaker no longer met the income standard for a caretaker, for  example, she could still remain eligible through her postpartum period.  Alternatively, a woman enrolled under a pregnancy-related basis of  eligibility would be redetermined for eligibility at the end of her  postpartum period and could continue enrollment as a caretaker if she  continued to meet the financial and other eligibility criteria. CMS  noted that such variations in eligibility policies are allowable and  expected among state Medicaid programs.

Eligibility system integration. Differences in the degree to which  selected states integrated their eligibility systems affected how  individuals were assessed for potential bases of eligibility and  potentially resulted in different eligibility determinations. Officials in  four of our five selected states—New Mexico, Oklahoma, Tennessee,  and Virginia—reported operating unified or integrated eligibility  systems through which individuals could be considered for both MAGI  and MAGI-exempt bases of eligibility. The fifth state, Maryland, had  separate eligibility systems for MAGI and MAGI-exempt bases of  eligibility, so an individual would need to apply through both systems  to have all potential bases of eligibility considered. As such, an  individual who is over age 65 and a caretaker of a dependent child  would have to submit two separate applications to be assessed for all  potential bases of eligibility in Maryland. Depending on the system to  which he or she applied, that individual could be enrolled in a less  beneficial basis of eligibility or denied eligibility for Medicaid. For  example, the individual might be determined ineligible for full Medicaid  benefits and enrolled in a Medicare Savings Program, in which  Medicaid covers out-of-pocket costs related to Medicare benefits.  (See fig. 1.)

Audits Identified Multiple Issues Related to the Accuracy of Eligibility Determinations; Selected States Had Processes Designed to Address Many Identified Issues

Our review of 47 state and federal audits across 21 states identified  multiple issues affecting the accuracy of states’ Medicaid eligibility  determinations. The accuracy issues identified in the audits we reviewed  generally fell into nine broad categories, such as eligibility determinations  made with incorrect or incomplete income or asset information,  unresolved discrepancies between what applicants reported as their  income and electronic data sources, and unidentified or unaddressed  changes in circumstances, such as changes in household income or  size. (See table 2.)

Within these nine broad categories, the audits identified several specific  accuracy issues, including states that were not conducting income checks for individuals reporting no income; not terminating the enrollment of individuals who had moved out of enrolling individuals who did not provide required information (such as  proof of citizenship) on a timely basis; months or years behind schedule in conducting required eligibility not acting on—or not having adequate systems in place to detect— changes in enrollees’ circumstances that could affect eligibility, such  as changes in income or household composition.

See table 3 for examples of audit findings related to each of the accuracy  issue categories, and appendix I for an overview of the key findings for  each audit we reviewed.

In some cases, the accuracy issues identified by auditors resulted in  errors in eligibility determinations, such as instances when applicants  were determined eligible even though their incomes were above the  applicable limit, or instances in which the state did not enroll eligible  individuals. However, in other instances, the accuracy issues identified by  auditors did not result in erroneous eligibility determinations. For example,  in some cases the audit found that a state determined that an applicant  was eligible based on incorrect or incomplete financial information;  however, auditors found that the applicant would have still been eligible  for Medicaid even after reviewing additional financial information. In other  cases, auditors found that eligibility determinations complied with state  policies and federal requirements, but that changes in state policies— such as using additional data sources or checking sources more  frequently—could provide more information that could be used to improve  eligibility determinations. For example, audits in three states found that  the quarterly wage data the states used to verify income did not detect  certain nonwage income; that income could have been identified had the  states chosen to use state or federal tax data as a verification source.  Auditors in one of these states (Louisiana) also found that checking  income data during individuals’ coverage period, such as on a quarterly  basis, could have saved the state tens of millions of dollars in managed  care fees for individuals whose incomes exceeded eligibility thresholds  during their enrollment period.

The selected states we reviewed reported having processes in place that  were designed to avoid or address many, but not all, of the accuracy  issues identified. The following are examples of the states’ processes  related to specific accuracy issues.

Incorrect or incomplete income or asset information. All five selected  states we reviewed reported checking electronic data sources to verify  income, including for individuals who report $0 in income. Officials from  some states noted, however, that the electronic sources they have  chosen to use do not include all relevant types of income, such as self- employment income. The five states also reported having electronic  asset verification systems to verify financial assets, such as bank and  retirement accounts for applicants subject to asset limits. One state (New  Mexico) reported that it recently implemented an asset verification system  that includes information from financial institutions, property ownership  records, and vehicle licensing.

Eligibility redeterminations not made in a timely manner. To help  ensure that redeterminations are made in a timely manner, all five  selected states reported conducting automatic redeterminations for at  least some MAGI enrollees using electronic data sources to confirm  continued eligibility. The proportion of MAGI enrollees whose eligibility  was automatically redetermined ranged from about 10 to 80 percent.  Officials from Virginia, which was cited by auditors in 2015 as having  significant delays in conducting redeterminations, reported that automatic  redeterminations have helped improve timeliness. Where automatic  eligibility redeterminations are not conducted—such as for enrollees  whose incomes could not be confirmed through electronic sources or who  are eligible on a MAGI-exempt basis—the five selected states reported  having systems in place to generate a redetermination packet or notice to  be sent to enrollees prior to the end of their eligibility period. Officials  reported that enrollees who do not complete their redetermination would  be disenrolled, with states varying in how quickly they would take such  action. For example, Oklahoma officials reported that the state  automatically terminates enrollment for individuals who do not reply with  the required information by the end of their coverage period. In contrast,  Virginia officials reported that redeterminations for which no response  was provided are kept open, pending eligibility worker action; the state’s  systems do not automatically terminate enrollment.

Unresolved income discrepancies. Officials in the five selected states  reported that their eligibility systems automatically identify income  discrepancies. For example, Oklahoma officials indicated that if there is  more than a 5 percent difference in the income reported on the  application and the income from electronic data sources, their system  either alerts eligibility workers or automatically sends a request for  additional information to the enrollee.

Individuals enrolled in incorrect basis of eligibility. According to state  officials, their eligibility systems have automated checks to reassess the  eligibility for individuals reaching certain milestones, such as the  maximum age for their basis of eligibility (i.e., children reaching adulthood  and adults reaching age 65) and pregnant women who are approaching  the end of their 60-day postpartum period. For example, to help ensure  individuals are correctly assigned to the appropriate basis of eligibility,  officials in Maryland noted that they apply system edits that preclude  individuals who are pregnant, age 65 or older, or enrolled in Medicare  from being incorrectly assigned to the new adult group.

Unidentified or unaddressed changes in circumstances. Officials  from the five selected states indicated that they generally had systems in  place to identify if an enrollee had died or moved out of state. For  example, officials from the five selected states reported conducting  periodic checks of residency through the Public Assistance Reporting  Information System—a federal data source that identifies individuals  receiving benefits in other states—and following up with identified  enrollees to see if they still reside in the state. None of the selected states  conducted regular reviews to identify changes in MAGI enrollees’  incomes during the enrollment period, although one state—Oklahoma— planned to implement interim checks of income in response to a recent  change in state law. Oklahoma also reported that it conducted quarterly  checks of wage data for MAGI-exempt enrollees.

Use of incomplete or incorrect information on household  composition. The selected states generally did not have processes in  place to detect accuracy issues related to household composition,  although officials in four of the five states—Maryland, New Mexico,  Oklahoma, and Virginia—noted that eligibility information from other  benefit programs may be compared with Medicaid files to detect changes  or discrepancies in household membership.

Previous Reviews CMS Used for Measuring Eligibility Errors Were Insufficient to Recoup Funds from States; New Procedures Are in Place for 2022

In 1983, CMS implemented its statutory requirement to recoup funds  associated with Medicaid eligibility-related improper payments for states  with an eligibility error rate above 3 percent through its MEQC program.  The MEQC program required states to randomly sample Medicaid  enrollees to verify eligibility. Claims related to enrollees determined  ineligible were tallied and compared with total claims for the sample  universe to calculate an error rate. Following federal validation, states  were subject to recoupment of all or part of the federal funds expended  related to erroneous state payments over the 3 percent error rate  threshold.

However, in 1992, HHS’s Departmental Appeals Board—the  department’s final level of administrative review—concluded that the  MEQC error rate was not sufficiently accurate to provide reliable evidence  to support recoupment of funds due to the small sample size from which  the error rate was calculated. Consequently, the appeals board stated  that it was “impossible to conclude with a reasonable certainty that the  States failed to meet their target rates….” As a result of this opinion,  CMS provided states the option, beginning in 1994, to either continue  operating a traditional MEQC program or to conduct what CMS referred  to as “MEQC pilots,” which focused on prospective improvements in  eligibility determinations, rather than calculation of error rates. Since the  “MEQC pilots” did not produce an error rate, CMS could not recoup  federal funds expended due to erroneous eligibility determinations for  states participating in the pilots. Between 2012, the earliest year for which  CMS has maintained records, and 2014 when CMS suspended the  MEQC program, 39 states participated in these “MEQC pilots” exempting  them from possible recoupment of funds due to eligibility errors. While  the other 12 states that continued to operate traditional MEQC programs  could still be subject to recoupment of funds, CMS officials reported that  no recoupments related to eligibility errors had occurred since the 1992  appeals board ruling, because none of these states had an error rate  exceeding the 3 percent threshold. Thus, CMS has not recouped federal  funds due to eligibility errors in decades.

However, the agency has introduced new procedures through which it  can, under certain circumstances, begin to recoup funds based on  eligibility errors in fiscal year 2022. Specifically, in July 2017, CMS issued  new regulations that included changes to its PERM process to satisfy the  statutory requirements for recouping funds that MEQC was previously  designed to operationalize. Under the revised PERM rules, CMS  calculated an eligibility error improper payment rate beginning with the  cohort of states under review for the fiscal year 2019 reporting period.  However, it will not recoup funding from states with error rates exceeding  the 3 percent threshold until states have a second review under the  revised PERM rules, which will occur for the first cohort of states in fiscal  year 2022. This allows each state the opportunity to implement  improvements based on its initial PERM review and the MEQC review it  will conduct in the off-cycle years to reduce the error rate or demonstrate  a “good faith effort” to do so.

CMS officials recognize the benefits of using state and federal audits,  such as audits we reviewed for this report, as part of a broader strategy to  improve program integrity and oversee states’ eligibility determination  processes. However, CMS officials told us they do not have the authority  to recoup federal funds related to eligibility errors identified outside of the  PERM process, such as through state single audits. According to CMS  officials, this is because of the specific statutory instruction limiting  recoupments to instances when eligibility-related errors exceed the 3  percent error rate threshold, and because PERM is the process that CMS  uses to calculate that error rate. The President’s fiscal year 2020 budget  request included a legislative proposal to expand HHS’s authority to issue  disallowances for eligibility errors. Specifically, the proposal requests  legislative authority to permit HHS to issue disallowances outside of PERM and allow HHS,  including the HHS-OIG, to extrapolate findings on beneficiary eligibility  to ensure federal recovery of incorrect eligibility determinations; and eliminate the current 3 percent threshold for states’ eligibility-related  improper payments. In place of the current 3 percent disregard, HHS  would issue rulemaking specifying criteria for the recoupment of  funds, including limiting them to instances of monetary loss, such as  cases in which ineligible individuals received benefits.

Determining whether individuals are eligible for Medicaid is a complex  process that is vulnerable to error. The processes used to measure the  extent of eligibility errors have been, and will continue to be, in a state of  transition over the next several years as CMS implements its new PERM  procedures and states implement improvements after their initial PERM  reviews under these new procedures. Because CMS has not had a  complete national estimate of improper payments due to eligibility errors  since 2014, policymakers and other stakeholders have had an incomplete  picture of the extent of eligibility errors in the Medicaid program nationally.  This state of flux will make the findings from federal and state audits an  even more important source of information on the accuracy of states’  eligibility determinations. As we have previously reported, oversight of the  Medicaid program could be further improved through leveraging and  coordinating program integrity efforts with state auditors to further  improve the integrity of the Medicaid program.

We provided a draft of this report to HHS for review and comment. HHS  provided technical comments, which we incorporated as appropriate.

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 to the Secretary of HHS, the  Administrator of the CMS, 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 members have any questions about this report, please  contact me at (202) 512-7114 or yocomc@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.

Appendix I: Summary of Federal and State Audits of the Accuracy of States’ Medicaid Eligibility Determinations

Table 4 provides a summary of key findings from the 47 federal and state  audits that discussed the accuracy of states’ Medicaid eligibility  determinations, published from 2014 through 2018, which we identified  and reviewed.

Appendix II: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Michelle Rosenberg (Assistant  Director), Perry Parsons (Analyst-in-Charge), and Heather Tompkins  made key contributions to this report. Also contributing were Drew Long,  Vikki Porter, and Jenny Rudisill.

States must determine whether people are eligible for Medicaid. The accuracy of these determinations affects federal and state spending. The Centers for Medicare & Medicaid Services oversees this process.

Federal and state audits showed several accuracy issues—some of which resulted in errors

For decades, CMS hasn’t recouped federal funds from states with eligibility error rates exceeding 3%—but plans to start in FY 2022

CMS updated its national estimate of inaccurate payments due to eligibility errors in November 2019—the first update since the Affordable Care Act required changes to states’ processes.


Maternal and Child Home Visiting Program: HHS Determined That States Generally Met the Maintenance of Effort Requirement

The MIECHV program provides grants to states to support evidence-based home visiting services for at-risk pregnant women and parents with young children. HHS was appropriated $400 million per year for the MIECHV grant program for fiscal years 2018 through 2022. Families volunteer to participate in the MIECHV program and are provided regular home visits and support services from a nurse, social worker, or other professional. According to HHS, the program builds upon decades of scientific research showing that home visits during pregnancy and early childhood can improve the lives of children and families. States began receiving federal MIECHV program funds in fiscal year 2010, but many states provided home visiting services prior to the MIECHV program using state or other funds. To meet the program's MOE requirement, states are required to maintain home visiting spending that meets MIECHV program criteria. GAO was asked to review the MIECHV program's MOE requirement.

GAO examined (1) what is known about the MOE spending reported by states that receive federal MIECHV program funds and (2) how HHS monitors states to ensure the MOE requirement is met. GAO reviewed MIECHV program notices of funding opportunity for fiscal years 2013 through 2018 and state grant applications for fiscal years 2016 through 2018, the most recent three years available. GAO also reviewed HHS grants monitoring documentation and interviewed HHS officials.

From fiscal years 2016 through 2018, state reported maintenance of effort (MOE) spending varied from $0 to more than $25 million for the Maternal, Infant, and Early Childhood Home Visiting (MIECHV) Program, according to GAO's review of MIECHV program grant applications. The program's authorizing statute requires states to meet an MOE requirement. MOE requirements in federal programs generally require grantees to maintain a certain level of spending to ensure grantee dollars are not replaced with federal dollars. To demonstrate their compliance with the MIECHV program's MOE requirement, states report in their annual grant applications their MOE spending for the prior fiscal year.

HHS determined that states generally met the MIECHV program's MOE requirement because states did not replace state funds with federal funds, including states that reported no MOE spending or decreased MOE spending. States may be permitted to report $0 in MOE spending in certain circumstances; for example, if a state's only home visiting spending was on programs that did not meet MIECHV program criteria. According to HHS officials, state-reported decreases in MOE spending were due to errors in calculations that were subsequently corrected, clarifications to HHS's MOE guidance, or because of circumstances outside of the state agency's control.

HHS uses multiple methods to monitor state compliance with the MOE requirement, according to GAO's review of HHS documentation and interviews with HHS officials. The agency's monitoring strategy includes reviews of grant applications, reviews of state single audits, and operational site visits, among other techniques. According to HHS officials, grant application reviews are the primary mechanism used to monitor state compliance, through which HHS compares state-reported MOE spending in grant applications across two fiscal years to determine if states maintained their level of spending. In addition, HHS identifies and resolves issues with state-reported MOE spending through its operational site visits and the agency's review of state single audits.

In 2010, the Patient Protection and Affordable Care Act established the  Maternal, Infant, and Early Childhood Home Visiting (MIECHV) Program  to support evidence-based home visiting services for at-risk pregnant  women and parents with young children. Families volunteer to participate  in the MIECHV program and are provided regular home visits and support  services from a nurse, social worker, or other professional. The MIECHV  program’s statute requires the use of high-quality home visiting program  models that have been shown by research to have positive outcomes.  The program, administered by the Department of Health and Human  Services’ (HHS) Health Resources and Services Administration (HRSA),  authorizes grants to states to provide home visiting services intended to  improve maternal and child health, prevent child abuse and neglect,  encourage positive parenting, and promote child development and school  readiness. According to HHS, the program also provides an opportunity  for increased collaboration at the federal, state, tribal, and community  levels to improve health and developmental outcomes for children.

In fiscal year 2018, the MIECHV program served nearly 77,000 families  and provided more than 930,000 home visits. The Bipartisan Budget Act  of 2018 appropriated $400 million per year to HHS to carry out the  MIECHV program for fiscal years 2018 through 2022. States began  receiving federal MIECHV program funds in fiscal year 2010. However,  many states provided home visiting services prior to the MIECHV  program, using state or other funds.

The MIECHV program’s authorizing statute requires states to meet a  maintenance of effort (MOE) requirement. In general, MOE requirements  in federal programs require grantees to maintain a certain level of  spending to ensure grantee dollars are not replaced with federal dollars,  and are intended to ensure that federal funding results in an increased  level of program activity. For the MIECHV program, for example, this  could mean that federal funds result in an increased number of home  visits provided or families served, compared to before the receipt of  federal funds.

You asked us to examine the MIECHV program’s MOE requirement. This  report examines (1) what is known about the MOE spending reported by  states that receive federal MIECHV program funds and (2) how HHS  monitors states to ensure the MOE requirement is met.

To address these objectives, we reviewed relevant documentation and  interviewed HRSA officials. Specifically, we reviewed notices of funding  opportunity (NOFO) for MIECHV program formula grants from federal  fiscal years 2013 through 2018 to examine the MOE guidance that HRSA  provided to states on how to demonstrate compliance with the MOE  requirement. We also compiled and analyzed data on state-reported  MOE spending in MIECHV program formula grant applications for the  three most recent fiscal years, 2016 through 2018. To assess the  reliability of the data, we spoke with knowledgeable HRSA officials and  confirmed the data we compiled with the agency. We found the reported  MOE spending data to be sufficiently reliable for our purposes. Although  MIECHV program funds are provided to states as both formula and  competitive grants, we focused our review on formula grant NOFOs and  applications because in recent years HRSA provided the majority of its  MIECHV grant funding through formula grants. In addition, our review  focused on state MIECHV programs and did not include territories or  tribal MIECHV programs.

We also reviewed relevant HHS grants monitoring documentation to  determine the extent that MOE is included in these documents, including  its Grants Policy and Administration Manual and monitoring reports. We  also interviewed relevant HRSA officials to obtain a better understanding  of the MOE instructions in the NOFOs, state-reported MOE spending,  types of monitoring conducted, and officials’ experiences assessing  compliance and addressing potential non-compliance with the MIECHV  program’s MOE requirement.

We conducted this performance audit from October 2018 to September  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.

The MIECHV program provides voluntary, evidence-based home visiting  services for at-risk eligible families with children up to kindergarten entry.

HRSA allocates MIECHV program formula grant funds to states based  partly on the proportion of children under age 5 living in poverty in each  state, among other factors. In fiscal year 2018, states received an  average of $6.9 million in MIECHV program formula grant funding,  ranging from $1.2 million provided to North Dakota to $21.4 million to  California (see appendix I for a list of all states and their fiscal year 2016  through 2018 funding). Generally, the state’s public health or social  services department is the lead agency that receives and administers the  funds.

States target MIECHV program resources to at-risk communities and  have the flexibility to tailor the program to serve the specific needs of their  communities. States are generally required to provide home visiting  services using an HHS-approved evidence-based program model.  Currently, HHS has determined through its Home Visiting Evidence of  Effectiveness review that 18 evidence-based home visiting models meet  HHS-established criteria for evidence of effectiveness, and are therefore  eligible for MIECHV funding. States may select programs to implement  from the models that have been approved by HHS, or states may choose  to implement a home visiting service delivery model that qualifies as a  promising approach, as defined in the statute. In MIECHV-funded home  visiting programs, professionals meet regularly with families and provide  services tailored to the families’ specific needs, such as teaching  parenting skills, promoting early learning in the home, or conducting  screenings and providing referrals to address caregiver depression,  substance abuse, and family violence. According to HHS, the MIECHV  program builds upon decades of scientific research showing that home  visits by a nurse, social worker, or early childhood educator during  pregnancy and early childhood have the potential to improve the lives of  children and families. From fiscal years 2013 through 2018, the number of  families served and number of home visits conducted nearly doubled (see  table 1).

The MIECHV program is the primary federal program focusing exclusively  on evidence-based home visiting, according to HHS. However, in addition  to administering the MIECHV program, states may have other home  visiting programs that may be supported by funds from other federal  programs, such as Temporary Assistance for Needy Families and the  Maternal and Child Health Services Block Grant. These home visiting  programs may provide services that differ from those provided under the  MIECHV program. For example, states may provide home visiting  services through these programs that use program models that are  different from the MIECHV program models approved by HHS.

The MOE requirement in the MIECHV program’s authorizing statute  provides that funds provided to an eligible entity receiving a MIECHV  grant “shall supplement, and not supplant, funds from other sources for  early childhood home visitation programs or initiatives.” To demonstrate  their compliance with this statutory requirement, states are required by  HRSA to report in their annual grant applications their MOE spending for  the prior fiscal year. HRSA provides guidance to states on how to report  their MOE spending in the annual NOFOs. For example, since fiscal year  2013, the MOE guidance in the NOFOs generally has directed states to  only report spending that meets the following criteria: paid for with state general funds,  spent in the prior fiscal year on HHS approved evidence-based  programs that include home visiting as a primary service delivery  strategy,  implemented in response to findings from the most current statewide  needs assessment, and offered on a voluntary basis to pregnant women or caregivers of  children from birth to kindergarten entry.

Over time, HRSA has clarified the MOE guidance provided in the NOFOs  to help address questions received from states, according to HRSA  officials.

We previously reported that certain grant design features affect the  likelihood that states will use federal funds to supplement, rather than  supplant (or replace), their own spending. One such design feature  requires grant recipients to contribute their own funds in order to obtain  grant funds. Requiring grant recipients to contribute their own funds can  take the form of a match or MOE requirement. According to our prior  report, matching grants typically contain either a single rate (e.g., 50  percent) or a range of rates (e.g., 50 to 80 percent) at which the federal  government will match state spending on a particular program. An MOE  requirement, in contrast, requires states to maintain existing levels of  state spending on a particular program as a condition of receiving federal  funds. Depending on the specific program and its MOE requirement, if a  state did not previously spend any state funds on covered activities, then  the state could be allowed to maintain MOE spending of $0.

The MOE requirement is one of many MIECHV program requirements  that HRSA is responsible for monitoring. HRSA also monitors MIECHV’s  programmatic and technical requirements, such as evidence-based  model implementation, policies and procedures, data collection, and  organizational structure and capacity. HRSA also monitors fiscal and  administrative requirements, such as those related to accounts payable  and cash flow, accounting systems, and cost allocations.

State-Reported Maintenance of Effort Spending Varied and HRSA Determined States Generally Met the Requirement

From fiscal years 2016 through 2018, state-reported MOE spending  varied from $0 to more than $25 million, according to our review of  MIECHV program grant applications (see fig. 1). For example, 28 states  reported MOE spending of $0 in fiscal year 2018. Most of the 23 states  that reported MOE spending greater than $0 in fiscal year 2018 reported  spending less than $3 million, while three states reported spending more  than $9 million. See appendix II for each state’s reported MOE spending  for fiscal years 2016 through 2018.

State-reported MOE spending does not necessarily reflect all state  spending on all home visiting services. When states report their prior  year’s MOE spending on their MIECHV grant applications, they are only  required to include home visiting spending if it meets the criteria specified  by HRSA in the NOFO. In addition to reporting their MOE spending in  grant applications, some states also noted that they spent funds on home  visiting services that did not meet those criteria. In fiscal year 2017, for  example, one state reported that it had spent funds on home visiting  services for a non-evidence-based model (i.e., a model not approved by  HHS), and the state also funded an evidence-based program with funds  other than state general funds. However, the state did not include either  in its reported MOE spending because that spending did not meet the  criteria for MOE spending in the NOFO.

An update to the MIECHV program’s MOE guidance in the NOFO for  fiscal year 2018 further impacted some state reported MOE spending.  The update clarified the MOE guidance, stating that states should only  report MOE spending by the recipient entity administering the MIECHV  grant, and not report spending by other state agencies. According to  HRSA officials—because the states were now directed to exclude some  previously reported home visiting spending—five states decreased their  reported MOE spending to $0. In addition, three other states reported a  decrease in their MOE spending ranging from about $1.2 million to about  $9.3 million because of this change (see table 2).

HRSA determined that states generally met the MIECHV program’s MOE  requirement because there was no supplantation of federal funds,  including in states that reported no MOE spending and those that  reported decreased MOE spending from the prior fiscal year. States  may be permitted to report $0 in MOE spending if the non-federal  spending on home visiting does not meet the criteria in the MOE  guidance in the NOFO. For example, if the state had not previously  funded home visiting programs that met HRSA’s MOE criteria for the  MIECHV program, then the state could maintain state spending of $0,  according to HRSA officials. States may report MOE spending of $0 if  state general funds were spent on a home visiting model that was not  approved by HRSA, if the state supports an evidence-based home visiting  program with funds other than state general funds, or if the state did not  support a home visiting program prior to implementation of MIECHV.

HRSA determined that state-reported year-to-year decreases in MOE  spending did not constitute supplantation (or replacement) of state funds  with federal funds, because as described more fully below, HRSA  determined there were valid reasons for the decreased MOE spending,  according to agency officials. Based on our analysis of grant  applications, 15 states reported decreases in MOE spending from fiscal  years 2016 through 2018 (see table 3). These decreases ranged from  $75,000 to $71,539 in one state, and $25,207,294 to $0 in another state.

According to HRSA officials, there were three different reasons why  states might have reported a decrease in MOE spending compared to the  prior year:  1.  The state made a technical error in its MOE calculation that  subsequently was corrected. For example, some states reported a  decrease in MOE spending compared to the prior year because the  state previously included erroneous funding sources, such as funding  for a home visiting program that did not meet the MIECHV program’s  MOE criteria.  2.  Circumstances outside of the state agency’s control contributed to the  state reporting decreased funding, such as when a state legislature  authorized budget cuts that affected home visiting funding or failed to  pass a budget. For example, according to HRSA officials, one state  experienced state budget challenges in fiscal years 2016 and 2017,  which resulted in decreased funding for some home visiting services.  The officials said this funding would have been included in the state’s  reported MOE spending and these budget reductions resulted in a  reduction to the reported MOE spending from the prior year.  3.  The clarification to the MOE guidance that HRSA made in the fiscal  year 2018 NOFO limited the spending states should report, as  previously discussed.

HRSA Employs Several Methods to Monitor State Compliance with the MOE Requirement

HRSA uses several methods to monitor the MIECHV program and the  program’s MOE requirement is addressed to some extent as part of each,  according to our review of HRSA grants monitoring documentation and  interviews with HRSA officials. These monitoring methods include grant  application reviews, site visits, and financial assessments, among others.  The monitoring methods vary in terms of the extent to which the MOE  requirement is specifically examined, who conducts the monitoring, and  the frequency of monitoring (see table 4).

The primary mechanism for monitoring the MIECHV program’s MOE  requirement is the review of grant applications, according to HRSA  officials. HRSA project officers review the MOE chart in states’ grant  applications for 2 fiscal years to compare state reported MOE spending— actual non-federal expenditures—and determine if states maintained their  level of spending (see table 5). If there is a missing MOE chart or  potentially inaccurate MOE spending information, project officers work  with states to resolve the issue.

While HRSA primarily relies on its review of grant applications to monitor  state compliance with the MIECHV program’s MOE requirement, the  agency supplements these reviews with other monitoring techniques, and  some of these techniques have identified issues with state-reported MOE  spending. For example, operational site visits provide HRSA an  opportunity to ask detailed questions about state-reported MOE spending  and obtain supporting documentation. As a result of operational site visits,  HRSA identified inaccurate state-reported MOE spending in some states.  We reviewed four completed site visit reports from 2017—the most  recently completed reports at the time of our review—and two of these  reports had findings related to inaccurate state-reported MOE spending.  For example, one site visit report noted that the state incorrectly included  home visiting spending that did not use an evidence-based model in its  reported MOE spending.

HRSA also found some deficiencies with states’ reported MOE spending  through the agency’s review of state single audits. According to HRSA  officials, there were five state single audits with MIECHV MOE findings  from fiscal years 2014 through 2017. We found that four of these audits  identified deficiencies with how states monitored and accounted for their  MOE spending. For example, one audit found that the state did not have  internal controls in place to ensure that state spending met the minimum  MOE requirement. In three of the four single audits that identified  deficiencies, the state agencies concurred with the findings and prepared  corrective action plans to address the deficiencies.

As of June 2019, HRSA officials said they have taken steps, or are  planning steps, to modify or provide additional guidance related to how  the agency monitors the MOE requirement for the MIECHV program.  Specifically:

HRSA officials told us that beginning with the formula grant NOFO for  fiscal year 2019, HRSA added an additional column to the MOE chart  for states to provide the expenditures for the 2 years prior to the  current fiscal year of the application. According to HRSA officials, this  will streamline HRSA’s process to compare state-reported MOE  spending across 2 prior fiscal years without having to go back to the  previous year’s grant application.

In February 2019, HRSA published an internal grants policy bulletin that specifically addressed MOE requirements and the agency’s monitoring of those requirements for all HRSA programs.

HRSA is currently working on MIECHV program standard operating procedures that are intended to clarify staff monitoring roles and responsibilities across the agency. Completion of this resource is targeted for the end of fiscal year 2019.

HRSA is also planning to add the MOE table to future MIECHV program Final Reports submitted by grantees, beginning with the fiscal year 2017 Final Report, which is due to HRSA in December 2019. According to officials, this will allow for a formal resubmission of MOE spending if there have been any changes since the submission of the most recent grant application.

We provided a draft of this report to HHS for review and comment. HHS  provided technical comments that we have incorporated in the report as  appropriate.

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  appropriate congressional committees, the Secretary of the Department  of Health and Human Services, and other interested parties. In addition,  the report will be 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) 512-7215 or larink@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix III.

Appendix I: Maternal, Infant, and Early Childhood Home Visiting Formula Grant Funding

Appendix II: State-Reported Maintenance of Effort Spending

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Elizabeth Morrison (Assistant  Director), Andrea Dawson (Analyst in Charge), David Reed, and Kelly  Snow made key contributions to this report. In addition, key support was  provided by Jennifer Cook, Sarah Cornetto, Thomas James, Jean  McSween, Mimi Nguyen, Stacy Ouellette, Michelle Sager, Almeta  Spencer, and Matthew Valenta.

To help at-risk pregnant women and parents with young children, the Affordable Care Act created the Maternal, Infant, and Early Childhood Home Visiting Program. It provides grants to states to fund home visits from a nurse, social worker, or other professional. The program builds upon decades of research showing that such visits can improve the lives of children and families.

Many states provided similar services before this program. To ensure federal funds pay for an expansion of services, the law requires states to maintain spending on existing services. The Department of Health and Human Services found states generally met the requirement.