Medical Assistance Program (report 11-15)

1. Medical Assistance Program(report 11-15) Legislative Audit Bureau February 2012

2. Audit Focus • Growth in program expenditures and recipients • Contracting for administrative services • Managing service delivery • Confirming eligibility • Improving program budgeting and financial management

3. Growth in Participation

4. Medical Assistance Subprograms • We grouped subprograms into three categories: • Acute and Primary Care, such as BadgerCare Plus and SSI Managed Care; • Long-Term Care, such as Family Care, IRIS, CIP, and COP; and • Limited-Benefit, such as SeniorCare and Qualified Medicare Beneficiaries.

5. Program Expenditures • Total expenditures increased from $5.0 billion in FY 2006-07 to $7.5 billion in FY 2010-11. • The growth is largely the result of an increase in the number of recipients precipitated by: • an economic downturn; and • changes in state law that expanded eligibility by an estimated 100,000 recipients. • Increases in the rates paid to inpatient hospitals, nursing homes, and some other providers also contributed to expenditure growth.

6. Contracting for Administrative Services • DHS paid vendors $411.9 million for administrative support services between FY 2006‑07 and FY 2010‑11. • The number of contract staff working for the largest vendor increased from 598.5 FTE positions in December 2008 to 1,127.5 FTE positions in June 2011. • DHS’s oversight and contract monitoring could be improved.

7. Managing Service Delivery • Studies support the use and expansion of managed care in providing health care services. • In FY 2009-10, the Medical Assistance program incurred $3.6 billion in fee-for-service expenditures. • A total of $421.2 million in fee-for-service expenditures was spent for BadgerCare Plus recipients before they enrolled in HMOs.

8. Confirming Eligibility • From FY 2006-07 through FY 2010-11: • Investigations of potential recipient fraud declined from 2,166 to 1,424, largely due to reduced state funding. • 65 percent of those who moved to Wisconsin had resided in the state for more than 12 months before they received Medical Assistance benefits, while 21 percent received benefits within their first month of residence. • Services were provided to 1,225 noncitizens at a cost of $10.7 million.

9. Improving Budgeting and Financial Management • DHS neither includes all Medical Assistance costs in its Medical Assistance budget nor records them as the program’s expenditures. • State and DHS accounting systems also contain insufficient information to apportion expenditures by subprogram. • We believe the best strategy to improve budgeting and financial management is to establish separate subprogram appropriations within the State’s budget.

10. Approaches to Controlling Costs • For FY 2011-12, a Kaiser Commission report found: • 46 states planned to freeze or reduce rates paid to providers of Medical Assistance services; and • 24 states planned to expand the use of managed care to provide program services. • DHS plans to reduce Medical Assistance costs by $554.4 million during the 2011-13 biennium. • The Joint Committee on Finance recently approved a portion of DHS’s plan to save $119.6 million in GPR by modifying eligibility rules, premiums, and benefits.

11. Future Considerations • The effectiveness of DHS’s efforts to reduce Medical Assistance expenditures depends on several factors. • The extent to which the federal government will approve DHS’s proposed eligibility rule modifications is currently not known. • How the federal Patient Protection and Affordable Care Act is implemented will affect future Medical Assistance costs and funding.

12. Audit Recommendation Summary • We recommend that DHS report to the Joint Legislative Audit Committee by July 2, 2012, on its efforts to: • develop separate accounting codes for administrative expenditures for the Medical Assistance and FoodShare programs; • ensure it has adequate funding for contractual services before authorizing expenditures; • use bids to solicit the most appropriate and effective administrative services at the most competitive price; • review existing contracted services to identify whether cost savings could be achieved by using state employees; • consider the potential benefits of enrolling recipients into HMOs in a more timely manner;

13. Audit Recommendation Summary (continued) • account for all Medical Assistance expenditures in determining total program costs; and • develop a more detailed biennial budget request and financial reporting structure to allow it to routinely budget and account for all Medical Assistance costs by subprogram. • Report to the Audit Committee by January 14, 2013, on how implementation of the Patient Protection and Affordable Care Act will affect both participation and costs.

14. Medical Assistance Program(report 11-15) Legislative Audit Bureau February 2012