July 24—The U.S. Department of Health and Human Services (HHS) allowed several states to spend billions more on Medicaid demonstration projects than is allowed per the agency’s budget neutrality policy, according to a recent audit report by the U.S. Government Accountability Office (GAO).

States seek approval for demonstration projects that provide Medicaid coverage or services to populations not covered under existing Medicaid rules. A chief factor in determining approval is the costs involved in the project and whether the endeavor is budget neutral. 

The GAO found that the HHS policy for assessing costs and budget neutrality is out of date. Moreover, the auditing agency suggests that HHS did not follow its policy in reviewing the demonstration projects of certain states. Four in particular were approved to spend more than $32 billion more than what was allowed through existing Medicaid rules. 

Within the report, the GAO recommends that HHS update its budget neutrality policy and reexamine spending limits for demonstration projects in Arizona and Texas. HHS disagrees with the GAO recommendations, insisting its projections were accurate and followed policy. 

Publication Date: Wednesday, July 24, 2013