GAO: Gaps Remain in Medicaid Managed Care Direct Payments Oversight

Despite CMS efforts to expand oversight of Medicaid managed care direct payments and the US Government Accountability Office’s (GAO’s) previous recommendations to improve processes, the direct payment process in Medicaid still suffers from missing information, according to a GAO report.

Typically, states fund managed care plans and these plans cover providers’ services. However, CMS allows direct managed care plan payments to providers, or state directed payments, that are based on state-determined quality measures. 

CMS provides some oversight for these state directed payments, but when GAO reviewed CMS data, documents, and guidance and interviewed the CMS officials the agency found the need for improvements.

Since state directed payments began in 2017, 660 state directed payments have been approved, peaking in 2020 at 271 approved state directed payments. Only 15 states and Washington DC had zero state directed payment approvals. Fourteen states had five or more approvals in 2021 and 21 states had one to four approvals, making this report broadly relevant.

CMS approved 79 state directed payments that started on or after July 1, 2021. The 28 states that funded these state directed payments are thought to have paid out $20.0 billion, with $14.2 billion—or more than two-thirds of the total estimated cost—coming from the federal government.

To improve oversight of the state directed payments process, CMS updated the state directed payment proposal form. The new proposal form requested an estimated total dollar amount of the state directed payment, the sources for funding the state’s share of the payments, and proof that the state directed payment was included in managed care contracts and capitation rate certifications.

However, these efforts did not solve existing information gaps, GAO found. Specifically, the agency called out the fact that CMS still lacks data on the payments that states make to providers. CMS has estimated that $20 billion went toward state directed payments for 2021, but cannot confirm the actual amount that states pay.

“We have raised concerns in past work about information gaps leaving federal funds at risk for impermissible or inappropriate payment,” GAO officials wrote.

The agency raised these concerns in December 2020, when GAO recommended that CMS record the sources of funding for the states’ portions of the payments and gather information on the providers who received the payments.

“Further GAO review is necessary to determine whether the previous concerns we have raised regarding Medicaid supplemental payments—such as transparency of reporting and assurance of their use to support Medicaid beneficiaries—apply to state directed payments,” GAO noted.

In the future, CMS plans to create a more streamlined approach to viewing state directed payment data, publicize state direct payment approvals, and support states in their state directed payment evaluations.

GAO is not the only agency to notice the need to change Medicaid managed care directed payments’ oversight and transparency. In its June 2022 report, MACPAC joined GAO in calling for directed payment information to be accessible to the public along with provider-level data.

Directed payments have an impact on rate-setting for Medicaid managed care organizations. Managing risk is a key part of the Medicaid managed care program and essential to the continued success of managed care organizations.