type: other

jurisdiction: US

text: b'Department of Health and Human Services\n OFFICE OF\n INSPECTOR GENERAL\n\n\n\n\n NEW JERSEY DID NOT COMPLY\n WITH RECOVERY ACT\n REQUIREMENTS FOR\nRECEIVING INCREASED FEDERAL\n MEDICAID ASSISTANCE\n\n\n Inquiries about this report may be addressed to the Office of Public Affairs at\n Public.Affairs@oig.hhs.gov.\n\n\n\n\n Daniel R. Levinson\n Inspector General\n\n July 2014\n A-02-11-01039\n\x0c Office of Inspector General\n https://oig.hhs.gov\n\n\n\nThe mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, is\nto protect the integrity of the Department of Health and Human Services (HHS) programs, as well as the\nhealth and welfare of beneficiaries served by those programs. This statutory mission is carried out\nthrough a nationwide network of audits, investigations, and inspections conducted by the following\noperating components:\n\nOffice of Audit Services\n\nThe Office of Audit Services (OAS) provides auditing services for HHS, either by conducting audits with\nits own audit resources or by overseeing audit work done by others. Audits examine the performance of\nHHS programs and/or its grantees and contractors in carrying out their respective responsibilities and are\nintended to provide independent assessments of HHS programs and operations. These assessments help\nreduce waste, abuse, and mismanagement and promote economy and efficiency throughout HHS.\n\nOffice of Evaluation and Inspections\nThe Office of Evaluation and Inspections (OEI) conducts national evaluations to provide HHS, Congress,\nand the public with timely, useful, and reliable information on significant issues. These evaluations focus\non preventing fraud, waste, or abuse and promoting economy, efficiency, and effectiveness of\ndepartmental programs. To promote impact, OEI reports also present practical recommendations for\nimproving program operations.\n\nOffice of Investigations\nThe Office of Investigations (OI) conducts criminal, civil, and administrative investigations of fraud and\nmisconduct related to HHS programs, operations, and beneficiaries. With investigators working in all 50\nStates and the District of Columbia, OI utilizes its resources by actively coordinating with the Department\nof Justice and other Federal, State, and local law enforcement authorities. The investigative efforts of OI\noften lead to criminal convictions, administrative sanctions, and/or civil monetary penalties.\n\nOffice of Counsel to the Inspector General\nThe Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering\nadvice and opinions on HHS programs and operations and providing all legal support for OIG\xe2\x80\x99s internal\noperations. OCIG represents OIG in all civil and administrative fraud and abuse cases involving HHS\nprograms, including False Claims Act, program exclusion, and civil monetary penalty cases. In\nconnection with these cases, OCIG also negotiates and monitors corporate integrity agreements. OCIG\nrenders advisory opinions, issues compliance program guidance, publishes fraud alerts, and provides\nother guidance to the health care industry concerning the anti-kickback statute and other OIG enforcement\nauthorities.\n\x0c Notices\n\n\n THIS REPORT IS AVAILABLE TO THE PUBLIC\n at https://oig.hhs.gov\n\n Section 8L of the Inspector General Act, 5 U.S.C. App., requires\n that OIG post its publicly available reports on the OIG Web site.\n\nOFFICE OF AUDIT SERVICES FINDINGS AND OPINIONS\n\n The designation of financial or management practices as\n questionable, a recommendation for the disallowance of costs\n incurred or claimed, and any other conclusions and\n recommendations in this report represent the findings and\n opinions of OAS. Authorized officials of the HHS operating\n divisions will make final determination on these matters.\n\x0c EXECUTIVE SUMMARY\n\n\n To comply with the political subdivision requirement in the Recovery Act, New Jersey\n should redistribute approximately $45.2 million in increased Federal Medicaid assistance to\n its counties and local school districts.\n\n\nWHY WE DID THIS REVIEW\n\nThis audit is part of a series of reviews of States\xe2\x80\x99 compliance with the requirements to receive\ntemporary increases in their Federal medical assistance percentage (FMAP) under the American\nRecovery and Reinvestment Act of 2009 (Recovery Act). We reviewed States\xe2\x80\x99 compliance with\nRecovery Act requirements because of the significant increases in States\xe2\x80\x99 Federal Medicaid\nassistance.\n\nThe objective of this review was to determine whether the New Jersey Department of Human\nServices (State agency) complied with the political subdivision requirement for receiving the\ntemporary increase in FMAP under the Recovery Act.\n\nBACKGROUND\n\nThe Recovery Act provided fiscal relief to States to protect and maintain State Medicaid\nprograms during a period of economic downturn. For the period October 1, 2008, through\nDecember 31, 2010 (recession-adjustment period), the Recovery Act provided approximately\n$87 billion in additional Medicaid funding on the basis of temporary increases in States\xe2\x80\x99 FMAPs.\nThe recession-adjustment period was extended through June 30, 2011, but we did not review the\nState agency\xe2\x80\x99s compliance with Federal requirements for this 6-month extension period.\n\nStates were eligible for the temporary increase in FMAP only if they did not require political\nsubdivisions (e.g., counties and local school districts) to pay a greater percentage of the\nnon-Federal share of Medicaid expenditures during the recession-adjustment period than the\npercentage required under the State Medicaid plan during the 12-month period ended September\n30, 2008 (base period). For the purposes of this review, we refer to this as the political\nsubdivision requirement.\n\nFor the recession-adjustment period, the State agency received an estimated $2.1 billion in\nadditional Medicaid funding on the basis of increases in New Jersey\xe2\x80\x99s FMAP.\n\nHOW WE CONDUCTED THIS REVIEW\n\nWe reviewed aggregate contributions from New Jersey\xe2\x80\x99s political subdivisions to the\nnon-Federal share of New Jersey\xe2\x80\x99s total Medicaid expenditures reported on the State agency\xe2\x80\x99s\nForms CMS-64, Quarterly Medicaid Statement of Expenditures, for the base and recession-\nadjustment periods.\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) i\n\x0cWHAT WE FOUND\n\nNew Jersey did not comply with the political subdivision requirement for receiving the increased\nFMAP under the Recovery Act. In the aggregate, New Jersey\xe2\x80\x99s political subdivisions\ncontributed 4.84 percent of the non-Federal share of Medicaid expenditures during the base\nperiod and 6.35 percent of the same share during the recession-adjustment period\xe2\x80\x94a difference\nof 1.51 percent. We calculated that New Jersey could demonstrate compliance with the political\nsubdivision requirement if it redistributed approximately $45.2 million to its political\nsubdivisions.\n\nNew Jersey\xe2\x80\x99s political subdivisions contributed a greater percentage of the non-Federal share of\nMedicaid expenditures during the recession-adjustment period than during the base period\nbecause the State agency did not adjust its requirements for these contributions to ensure\ncompliance with the political subdivision requirement before the State agency accessed increased\nFMAP funds.\n\nWHAT WE RECOMMEND\n\nWe recommend that the State agency:\n\n \xe2\x80\xa2 redistribute approximately $45.2 million in increased FMAP funding to its political\n subdivisions to comply with the political subdivision requirement and\n\n \xe2\x80\xa2 work with the Centers for Medicare & Medicaid Services to ensure that, for the 6-month\n Recovery Act extension period ended June 30, 2011, political subdivisions did not\n contribute a greater percentage of the non-Federal share of Medicaid expenditures than\n the percentage required under the State Medicaid plan on September 30, 2008.\n\n STATE AGENCY COMMENTS AND OUR RESPONSE\n\nIn written comments on our draft report, the State agency partially agreed with our first\nrecommendation (redistribution of funds) and described actions that it plans to take to address\nour second recommendation. Specifically, the State agency agreed that it was not in compliance\nwith the political subdivision requirement for receiving increased FMAP under the Recovery\nAct. However, it disagreed with the amount it must redistribute to New Jersey\xe2\x80\x99s political\nsubdivisions for it to comply with the requirement.\n\nAccording to the State agency, it does not rely on the aggregate methodology\xe2\x80\x94one of two CMS-\napproved methods\xe2\x80\x94for measuring its compliance and would need to distribute no more than\n$17,061,780 to local jurisdictions to be in compliance under the CMS-approved payment-\nspecific method. The State agency also took issue with how we calculated the amount that it\nwould need to distribute to county nursing facilities during the recession adjustment period. The\nState agency also argued that it uses certified public expenditures (CPEs) to fund county-\noperated nursing and psychiatric facilities and that under such a funding mechanism, there is no\ncounty share. The State agency forwarded correspondence between State agency and CMS\nofficials in which CMS confirmed that on the basis of the State agency\xe2\x80\x99s description of its\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) ii\n\x0cfunding mechanism, the State agency complied with the political subdivision requirement.\nFinally, the State agency also indicated that it plans to review data for the 6-month Recovery Act\nextension period ended June 30, 2011, and take appropriate action, depending on how issues in\nthis report are resolved.\n\nAfter reviewing the State agency\xe2\x80\x99s comments, we revised our finding and recommendation\nrelated to county nursing facility expenditures. We did not accept the State agency\xe2\x80\x99s argument\nconcerning its use of a CPE funding mechanism because the State agency did not completely and\naccurately describe its funding mechanism to CMS in its correspondence related to county\nnursing and psychiatric facility expenditures.\n\nRegardless of whether the State agency relies on either the aggregate or payment-specific\nmethod, New Jersey is subject to losing all of its increased FMAP funding for the recession-\nadjustment period if it does not demonstrate compliance with the political subdivision\nrequirement. However, New Jersey could retain the increased FMAP if it properly adjusts its\npolitical subdivisions\xe2\x80\x99 contributions during the recession-adjustment period. We calculated that\nthe State agency should redistribute approximately $45.2 million to the political subdivisions for\nit to comply with the political subdivision requirement and, therefore, retain the increased FMAP\nfunding.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) iii\n\x0c TABLE OF CONTENTS\n\nINTRODUCTION ...........................................................................................................................1\n\n Why We Did This Review ...................................................................................................1\n\n Objective ..............................................................................................................................1\n\n Background ..........................................................................................................................1\n The Medicaid Program ............................................................................................1\n The Recovery Act: Political Subdivision Requirement ...........................................1\n Demonstrating Compliance With the Political Subdivision Requirement ..............2\n New Jersey\xe2\x80\x99s Requirements for Contributions by its Political Subdivisions\n to the Non-Federal Share of Medicaid Expenditures ............................................2\n\n How We Conducted This Review........................................................................................3\n\nFINDINGS ......................................................................................................................................4\n\n Services in County Nursing Facilities..................................................................................4\n\n Services to Uninsured Patients in State Agency- and County-Operated\n Psychiatric Facilities .........................................................................................................5\n\n Medicaid-Eligible School-Based Services ...........................................................................6\n\nCONCLUSION ................................................................................................................................6\n\nRECOMMENDATIONS .................................................................................................................7\n\nSTATE AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE ......7\n\n Payment-Specific Method....................................................................................................8\n Use of Certified Public Expenditures ......................................................................8\n Services in County Nursing Facilities......................................................................9\n Services in State Agency- and County-Operated Psychiatric Facilities ................10\n Medicaid-Eligible School-Based Services .............................................................11\n\n Aggregate Method .............................................................................................................12\n State Agency Comments ........................................................................................12\n Office of Inspector General Response ...................................................................12\n\n Conclusion .........................................................................................................................12\n State Agency Comments ........................................................................................12\n Office of Inspector General Response ...................................................................12\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) iv\n\x0cAPPENDIXES\n\n A: Related Office of Inspector General Reports ...............................................................14\n\n B: Federal Eligibility Requirements for the Increased Federal Medical Assistance\n Percentage Under the Recovery Act .........................................................................15\n\n C: New Jersey Requirements for Contributions by Political Subdivisions\n to the Non-Federal Share of Certain Medicaid Expenditures ...................................17\n\n D: Audit Scope and Methodology ....................................................................................19\n\n E: Aggregate Method Calculation ....................................................................................21\n\n F: Political Subdivisions\xe2\x80\x99 Contributions to the Non-Federal Share\n of New Jersey\xe2\x80\x99s Medicaid Expenditures...................................................................22\n\n G: Amounts To Be Redistributed to Political Subdivisions for New Jersey\n To Comply With Recovery Act Requirements .........................................................23\n\n H: State Agency Comments Dated February 21, 2014 .....................................................31\n\n I: State Agency Comments Dated March 31, 2014 ..........................................................44\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) v\n\x0c INTRODUCTION\n\nWHY WE DID THIS REVIEW\n\nThis audit is part of a series of reviews of States\xe2\x80\x99 compliance with the requirements to receive\ntemporary increases in their Federal medical assistance percentage (FMAP) under the American\nRecovery and Reinvestment Act of 2009 (Recovery Act). We reviewed States\xe2\x80\x99 compliance with\nRecovery Act requirements because of the significant increases in States\xe2\x80\x99 Federal Medicaid\nassistance. For a list of related Office of Inspector General reports, see Appendix A.\n\nOBJECTIVE\n\nOur objective was to determine whether the New Jersey Department of Human Services (State\nagency) complied with the political subdivision requirement for receiving the temporary increase\nin FMAP under the Recovery Act.\n\nBACKGROUND\n\nThe Medicaid Program\n\nThe Medicaid program provides medical assistance to low-income individuals and individuals\nwith disabilities. The Federal and State Governments jointly fund and administer the Medicaid\nprogram. At the Federal level, the Centers for Medicare & Medicaid Services (CMS)\nadministers the program. Each State administers its Medicaid program in accordance with a\nCMS-approved State plan. Although the State has considerable flexibility in designing and\noperating its Medicaid program, it must comply with applicable Federal requirements.\n\nThe Recovery Act: Political Subdivision Requirement\n\nThe Recovery Act provided fiscal relief to States to protect and maintain State Medicaid\nprograms in a period of economic downturn. For the period October 1, 2008, through\nDecember 31, 2010 (recession-adjustment period), the Recovery Act provided approximately\n$87 billion in additional Medicaid funding on the basis of temporary increases in States\xe2\x80\x99\nFMAPs. 1\n\nStates were eligible for the temporary increase in FMAP only if they did not require political\nsubdivisions (e.g., counties and local school districts) to pay a greater percentage of the\nnon-Federal share of Medicaid expenditures during the recession-adjustment period than the\npercentage required under the State Medicaid plan during the 12-month period ended\n\n\n\n\n1\n Section 201 of the Education, Jobs, and Medicaid Assistance Act (P.L. No. 111-226) extended the recession-\nadjustment period through June 30, 2011, by amending section 5001(g)(2) of the Recovery Act. We did not review\nthe State agency\xe2\x80\x99s compliance with Federal requirements for this 6-month extension period.\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 1\n\x0cSeptember 30, 2008 (base period) (Recovery Act, \xc2\xa7 5001(g)(2)). 2 For the purposes of this\nreview, we refer to this subsection as the political subdivision requirement.\n\nDemonstrating Compliance With the Political Subdivision Requirement\n\nIn a letter to State Medicaid directors, CMS provided guidance on the political subdivision\nrequirement. 3 In the letter, CMS stated that States attest to their compliance with the political\nsubdivision requirement when they access increased FMAP funds. States could demonstrate\ncompliance with the political subdivision requirement using one of two methods: the payment-\nspecific method 4 (which compares the percentage of the non-Federal share contributed by each\npolitical subdivision for each type of expenditure) or the aggregate method 5 (which compares the\npercentage contributed by all political subdivisions for the total annual program costs).\n\nCMS recommended that States use the payment-specific method to demonstrate compliance with\nthe political subdivision requirement when political subdivisions are required to contribute to the\nnon-Federal share for particular Medicaid expenditures.\n\nCMS further indicated that failure to comply with Recovery Act requirements would make States\nsubject to losing all of their increased FMAP. However, the increased FMAP would be restored\nif States corrected any issues by adjusting the funding of the non-Federal share by their political\nsubdivisions to reflect the correct percentages as of September 30, 2008.\n\nFor details on the Federal requirements and CMS\xe2\x80\x99s guidance on the increased FMAP under the\npolitical subdivision requirement, see Appendix B.\n\nNew Jersey\xe2\x80\x99s Requirements for Contributions by Its Political Subdivisions to the\nNon-Federal Share of Medicaid Expenditures\n\nIn New Jersey, the State agency administers the Medicaid program. The State agency submits\nthe Form CMS-64, Quarterly Medicaid Statement of Expenditures (Form CMS-64), to report\n\n2\n State Medicaid Director Letter (SMDL) #10-010 defined the base period to be the 12-month period ended\nSeptember 30, 2008 (CMS, SMDL #10-010, issued June 21, 2010).\n3\n CMS, SMDL #10-010, issued June 21, 2010.\n4\n Under the payment-specific method, States compared the percentage of the non-Federal share of Medicaid\nexpenditures funded by political subdivisions for each type of expenditure (for which States required the political\nsubdivisions to share the funding of the non-Federal share) in the base period with the funding obligation for the\nsame types of expenditure during the recession-adjustment period. States demonstrated compliance if there were no\nincreases in political subdivision funding obligations for any type of expenditure.\n5\n The aggregate method included an analysis of total annual program costs (medical and administrative) for the\nMedicaid program as it existed under States\xe2\x80\x99 Medicaid State plans on September 30, 2008. For the base period,\nStates determined the percentage of aggregate funding of the non-Federal share that was required to be furnished by\npolitical subdivisions. To determine compliance with the Recovery Act, States compared the percentages of\naggregate funding of the non-Federal share required of political subdivisions during the base and recession-\nadjustment periods. States demonstrated compliance if the percentage during the recession-adjustment period was\nno greater than the percentage during the base period.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 2\n\x0ctotal computable expenditures to CMS and claim the FMAP of reported expenditures for\nMedicaid reimbursement. The State agency attested to New Jersey\xe2\x80\x99s compliance with the\npolitical subdivision requirement of the Recovery Act when it accessed increased FMAP funds.\n\nNew Jersey is composed of 21 counties. Seventeen of these counties operated 19 nursing\nfacilities, and 6 counties operated psychiatric facilities during our audit period. There are also\nmore than 600 school districts in New Jersey, some of which operate on a countywide level\nwhile others serve single municipalities (e.g., townships). These counties and the school districts\nare political subdivisions.\n\nNew Jersey does not require its political subdivisions to contribute to the non-Federal share of all\nMedicaid expenditures. Rather, it requires its political subdivisions to contribute to the non-\nFederal share of four categories of Medicaid expenditures: (1) services provided in county\nnursing facilities, (2) services to uninsured patients in State agency- and county-operated\npsychiatric facilities, (3) Medicaid-eligible services administered by local school districts, and\n(4) certain administrative costs incurred by counties. The non-Federal share is derived by\nsubtracting the applicable Federal share from the total computable expenditures for each\ncategory as reported on the State agency\xe2\x80\x99s Form CMS-64. For details on New Jersey\xe2\x80\x99s\nrequirements related to political subdivisions\xe2\x80\x99 participation for each of the four expenditure\ncategories, see Appendix C.\n\nFor the recession-adjustment period, the State agency received an estimated $2.1 billion in\nadditional Medicaid funding on the basis of increases in the State\xe2\x80\x99s FMAP. 6 Although New\nJersey requires political subdivisions to contribute to the non-Federal share for only four\ncategories of Medicaid expenditures, the State agency elected to use the aggregate method (as\ndescribed in footnote 5) to demonstrate New Jersey\xe2\x80\x99s compliance with the political subdivision\nrequirement of the Recovery Act. 7\n\nHOW WE CONDUCTED THIS REVIEW\n\nWe compared New Jersey\xe2\x80\x99s political subdivisions\xe2\x80\x99 aggregate contributions to the non-Federal\nshare of total Medicaid expenditures reported on the State agency\xe2\x80\x99s Forms CMS-64 for the base\nand recession-adjustment periods.\n\nWe conducted this performance audit in accordance with generally accepted government\nauditing standards. Those standards require that we plan and perform the audit to obtain\nsufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions\nbased on our audit objectives. We believe that the evidence obtained provides a reasonable basis\nfor our findings and conclusions based on our audit objectives.\n\n6\n The FMAP for New Jersey was 50 percent during the base period. The FMAP was increased to 58.78 percent for\nthe period October 1, 2008, through March 31, 2009, and to 61.59 percent for the period April 1, 2009, through\nDecember 31, 2010 (recession-adjustment period).\n7\n Before our fieldwork, the State agency indicated in a detailed position paper to CMS that it could demonstrate\ncompliance under the aggregate method. Subsequent to the issuance of our draft report, the State agency indicated\nthat it did not rely on this method. The State agency\xe2\x80\x99s subsequent indication did not impact our findings and\nrecommendations.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 3\n\x0cAppendix D contains the details of our audit scope and methodology.\n\n FINDINGS\n\nNew Jersey did not comply with the political subdivision requirement for receiving the increased\nFMAP under the Recovery Act. In the aggregate, New Jersey\xe2\x80\x99s political subdivisions\ncontributed 4.84 percent of the non-Federal share of Medicaid expenditures during the base\nperiod and 6.35 percent of the same share during the recession-adjustment period\xe2\x80\x94a difference\nof 1.51 percent. We calculated that New Jersey could demonstrate compliance with the political\nsubdivision requirement if it redistributed approximately $45.2 million to its political\nsubdivisions. 8 Although the difference (1.51 percent) is approximately $145.2 million, this\namount differs from what we are recommending New Jersey redistribute because of the way in\nwhich States were to calculate their political subdivisions\xe2\x80\x99 contributions using the aggregate\nmethod and the nature of New Jersey\xe2\x80\x99s policies for reimbursing political subdivisions\xe2\x80\x99 Medicaid\nexpenditures.\n\nAppendix E contains our calculation of political subdivisions\xe2\x80\x99 percentage contribution of the\nnon-Federal share using the aggregate method. Appendix F shows the components of our\ncalculation (i.e., political subdivisions\xe2\x80\x99 Medicaid expenditures).\n\nNew Jersey\xe2\x80\x99s political subdivisions contributed a greater percentage of the non-Federal share of\nMedicaid expenditures during the recession-adjustment period than during the base period\nbecause the State agency did not adjust its requirements for these contributions to ensure\ncompliance with the political subdivision requirement before the State agency accessed increased\nFMAP funds.\n\nSERVICES IN COUNTY NURSING FACILITIES\n\nNew Jersey claims Medicaid reimbursement for county nursing facilities on the basis of actual\nallowable Medicaid costs incurred by the provider. 9 Funding for such county-administered\nnursing facilities is composed of a Federal share and the non-Federal share. The non-Federal\nshare is composed of the (1) State (New Jersey) share and (2) contributions from each county\n(which is the difference between the total non-Federal share and the State share).\n\nNew Jersey reimburses counties for services in nursing facilities using a blended rate composed\nof Federal and New Jersey shares. Contributions made by the counties cover the remainder of\ntheir facilities\xe2\x80\x99 actual expenditures.\n\n8\n The political subdivisions\xe2\x80\x99 contributions to the non-Federal share of expenditures during the recession-adjustment\nperiod totaled $611,175,502. The non-Federal share for the same period totaled $9,627,356,951. Applying the\npolitical subdivision percentage from the base period (4.84 percent) to the non-Federal share of expenditures during\nthe recession-adjustment period results in excess contributions of $145,218,212 under the aggregate method of\ndemonstrating compliance: [$611,175,502 \xe2\x80\x93 (4.84 x $9,627,256,951)] = $145,218,212.\n9\n The State agency establishes interim rates and claims Medicaid reimbursement for each facility using the facility\xe2\x80\x99s\nmost recently reviewed and approved cost report, inflated by a factor for projected labor costs and the Consumer\nPrice Index. Medicaid reimbursement claimed is adjusted to the facility\xe2\x80\x99s actual costs when the cost report for the\napplicable rate year is filed.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 4\n\x0cDuring the recession-adjustment period, as a result of New Jersey\xe2\x80\x99s method for reimbursing its\npolitical subdivisions for expenditures in county nursing facilities (i.e., using a \xe2\x80\x9cblended rate\xe2\x80\x9d),\ncounties contributed a greater percentage of the non-Federal share of expenditures. Specifically,\nas the FMAP increased during the recession-adjustment period, the reimbursement to the\ncounties, in aggregate, did not increase at the same rate; as a result, counties funded a greater\npercentage of the non-Federal share of nursing facility expenditures.\n\nFor details on the political subdivisions\xe2\x80\x99 contributions to the non-Federal share of Medicaid\nexpenditures for county nursing facilities, see Appendix G.\n\nSERVICES TO UNINSURED PATIENTS IN STATE AGENCY- AND\nCOUNTY-OPERATED PSYCHIATRIC FACILITIES\n\nNew Jersey requires that counties contribute a portion of the expenditures for uninsured residents\nin State agency- and county-operated psychiatric facilities. During the base period, New Jersey\nrequired its counties to contribute 10 percent of the total expenditures for county residents\nresiding in State agency- and county-operated psychiatric facilities (New Jersey Statutes\nAnnotated (N.J.S.A.) \xc2\xa7 30:4-78).\n\nIn calendar years (CYs) 2009 and 2010, New Jersey law, which became effective after\nSeptember 30, 2008 (the date set out in the Recovery Act for measuring compliance with the\npolitical subdivision requirement), required New Jersey counties to contribute 12.5 and\n15 percent, respectively, of total expenditures for county residents residing in State agency- and\ncounty-operated psychiatric facilities (Public Law 2008, chapter 35, and Public Law 2009,\nchapter 68). 10\n\nAs a result, the State agency increased the political subdivisions\xe2\x80\x99 non-Federal share of funding\nobligations for uninsured patients in State agency- and county-operated psychiatric facilities\nduring the recession-adjustment period.\n\nFor details on the political subdivisions\xe2\x80\x99 contributions to the non-Federal share of Medicaid\nexpenditures for psychiatric facilities, see Appendix G.\n\n\n\n\n10\n The law setting the CY 2009 rate was passed on June 30, 2008, with an effective date of January 1, 2009. The\nlaw setting the CY 2010 rate was passed on June 30, 2009, with an effective date of January 1, 2010. In a\nNovember 9, 2010, letter to State Medicaid directors, CMS stated that, to show compliance with the political\nsubdivision requirement, State laws effective after September 30, 2008, should not have increased political\nsubdivisions\xe2\x80\x99 percentage contributions to the non-Federal share (SMDL #10-023).\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 5\n\x0cMEDICAID-ELIGIBLE SCHOOL-BASED SERVICES\n\nTo comply with the political subdivision requirement, States that use certified public\nexpenditures (CPEs) 11 as a funding mechanism should have ensured that as the Federal share\nincreased, the reduction in the non-Federal share was credited proportionately to the contributing\npublic agency. 12 To comply with this requirement, States were required to review requirements\nwith their political subdivisions to ensure that any agreements where specific dollar amounts are\ntransferred were adjusted so that the overall percentage of the non-Federal share contribution\nwas not increased because of an increase in the FMAP rate and the reduction in the non-Federal\nshare.\n\nProvisions in New Jersey Budget Appropriation Acts for State fiscal years 2008 through 2011\n(Public Law 2007 through Public Law 2010) required that each local school district that\nparticipated in the Special Education Medicaid Initiative (SEMI) receive Federal revenue that\nequaled 17.5 percent of the claims (a specific dollar amount) approved by New Jersey. These\nSEMI expenditures are treated as CPEs. Thus, New Jersey should have ensured that as the\nFederal share increased, the reduction in the non-Federal share was credited proportionately to\nthe political subdivisions.\n\nThe school districts\xe2\x80\x99 percentage contribution to the non-Federal share during the recession-\nadjustment period exceeded the percentage during the base period because the State agency did\nnot credit the school districts proportionately for the reduction in the non-Federal share as the\nFederal share increased under the Recovery Act. Specifically, as the Federal share increased\nduring the recession-adjustment period, the local school districts continued receiving\n17.5 percent of the claims approved by New Jersey, thereby effectively increasing the school\ndistricts\xe2\x80\x99 contribution percentage of the non-Federal share of Medicaid-eligible services during\nthe recession-adjustment period. As a result, the State agency increased the school districts\xe2\x80\x99\nfunding obligations for the non-Federal share of Medicaid-eligible services in local school\ndistricts during the recession-adjustment period.\n\nFor details on the political subdivisions\xe2\x80\x99 contributions to the non-Federal share of Medicaid\nexpenditures for SEMI, see Appendix G.\n\n CONCLUSION\n\nWe determined that New Jersey did not comply with the political subdivision requirement.\nTherefore, CMS could make New Jersey subject to losing all of its increased FMAP. However,\nper CMS guidance, the increased FMAP would be restored if New Jersey corrected any issues by\nadjusting the funding of the non-Federal share by its political subdivisions to reflect the correct\npercentages as of the end of the base period.\n\n\n11\n CPEs are actual expenditures that a governmental entity (e.g., county hospital, local school district) certifies it has\nincurred in providing eligible Medicaid services (42 CFR 433.51).\n12\n CMS, American Recovery and Reinvestment Act of 2009 Frequently Asked Questions from States, July 7, 2009.\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 6\n\x0cIn the aggregate, political subdivisions contributed 4.84 percent of the non-Federal share during\nthe base period and 6.35 percent of the same share during the recession-adjustment period.\nAlthough this is a difference of approximately $145.2 million,13 New Jersey could demonstrate\ncompliance with the political subdivision requirement if it redistributed approximately\n$45.2 million to its political subdivisions. For details on our calculation of the amount New\nJersey should redistribute to its political subdivisions, see Appendix G. 14\n\n RECOMMENDATIONS\n\nWe recommend that the State agency:\n\n \xe2\x80\xa2 redistribute approximately $45.2 million in increased FMAP funding to its political\n subdivisions to comply with the political subdivision requirement and\n\n \xe2\x80\xa2 work with CMS to ensure that, for the 6-month Recovery Act extension period ended\n June 30, 2011, political subdivisions did not contribute a greater percentage of the\n non-Federal share of Medicaid expenditures than the percentage required under the State\n Medicaid plan on September 30, 2008.\n\n STATE AGENCY COMMENTS AND\n OFFICE OF INSPECTOR GENERAL RESPONSE\n\nIn written comments on our draft report, the State agency partially agreed with our first\nrecommendation (redistribution of funds) and described actions that it plans to take to address\nour second recommendation. Specifically, the State agency agreed that it was not in compliance\nwith the political subdivision requirement for receiving increased FMAP under the Recovery\nAct. However, it disagreed with the amount it must redistribute to New Jersey\xe2\x80\x99s political\nsubdivisions for it to comply with the requirement.\n\nAccording to the State agency, it does not rely on the aggregate methodology for measuring its\ncompliance and would need to distribute no more than $17,061,780 to local jurisdictions to be in\ncompliance under the payment-specific method. The State agency also took issue with how we\ncalculated the amount that it would need to distribute to county nursing facilities during the\nrecession adjustment period. The State agency also indicated that it plans to review data for the\n6-month Recovery Act extension period ended June 30, 2011, and take appropriate action,\ndepending on how issues in this report are resolved.\n\n\n13\n This amount is the result of how States were to calculate their political subdivisions\xe2\x80\x99 contributions using the\naggregate method and the nature of New Jersey\xe2\x80\x99s requirements for funding the non-Federal share of Medicaid\nexpenditures.\n14\n Our calculation comprises the following expenditure categories: County Nursing Facilities ($20,883,357), State\nAgency- and County-Operated Psychiatric Facilities ($10,403,984), and School-Based Health Services\n($13,916,801). Our calculation of the adjustment does not include political subdivisions\xe2\x80\x99 contributions to the\nnon-Federal share of Medicaid expenditures for certain administrative costs incurred by the counties because the\nState agency did not require the political subdivisions to contribute more to this expenditure category during the\nrecession-adjustment period than it did during the base period.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 7\n\x0cAfter reviewing the State agency\xe2\x80\x99s comments, we revised our finding and recommendation\nrelated to county nursing facility expenditures. Regardless of whether the State agency relies on\neither the aggregate or payment-specific method, New Jersey is subject to losing all of its\nincreased FMAP funding for the recession adjustment period if it does not demonstrate\ncompliance with the political subdivision requirement. However, New Jersey could retain the\nincreased FMAP if it properly adjusts its political subdivisions\xe2\x80\x99 contributions during the\nrecession-adjustment period. We calculated that the State agency should redistribute\napproximately $45.2 million to the political subdivisions for it to comply with the political\nsubdivision requirement and, therefore, retain the increased FMAP funding awarded during the\nrecession-adjustment period. The State agency\xe2\x80\x99s comments appear in their entirety as\nAppendix H (February 21, 2014) and Appendix I (March 31, 2014). The State agency\xe2\x80\x99s\ncomments dated March 31, 2014, addressed only the subject of the State agency\xe2\x80\x99s use of CPEs.\n\nPAYMENT-SPECIFIC METHOD\n\nUse of Certified Public Expenditures\n\nState Agency Comments\n\nThe State agency stated that it fully complied with the political subdivision requirement for\nexpenditures related to county nursing and psychiatric facilities and that these expenditures were\nincurred on a CPE basis. In its February 21, 2014, comments, the State agency stated that CMS\nviews reimbursements to counties of the non-Federal share in CPE cases as an internal matter\n(emphasis in original) between States and counties and considers the counties, for Recovery Act\npurposes, as bearing the cost of all expenditures less the Federal reimbursement the State passed\nthrough to counties. The State agency further stated that, for each service type, the amount it\nreimbursed to the counties exceeded 100 percent of the Federal share.\n\nIn its February 21, 2014, comments, the State agency stated that we did not account for county\nnursing and psychiatric facility expenditures as CPEs and, therefore, significantly overstated the\namount the State agency must redistribute to counties. In its March 31, 2014, comments, the\nState agency forwarded correspondence between State agency and CMS officials in which CMS\nconfirmed that on the basis of the State agency\xe2\x80\x99s description 15 of its funding mechanism, the\nState agency complied with the political subdivision requirement. On the basis of its\ncorrespondence with CMS, the State agency requested that we withdraw our recommendation\nthat the State redistribute funds to county nursing homes and county psychiatric facilities.\n\nOffice of Inspector General Response\n\nThe State agency did not completely and accurately describe its funding mechanism to CMS in\nits correspondence related to county nursing and psychiatric facility expenditures. Specifically,\nthe State agency did not fully describe the funding mechanism prescribed in its State Medicaid\nplan for county nursing facility expenditures. The State Medicaid plan (Attachment 4.19-D,\n\xc2\xa7 3.22) provides a funding methodology for county nursing expenditures based on Federal, State,\n\n15\n The State agency described these expenditures in a March 10, 2014, letter to CMS that the State agency included\nin its comments dated March 31, 2014.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 8\n\x0cand county shares of costs incurred by the facilities. (A copy of the applicable Medicaid State\nplan provision is included as part of Appendix C.) The funding methodology requires both the\nState and each county to contribute to the non-Federal share. As such, each county does not\ncontribute 100 percent of the total non-Federal share. 16 This fact was omitted from the State\nagency\xe2\x80\x99s correspondence with CMS regarding CPEs. The State agency similarly contributed a\nportion of the non-Federal share for county psychiatric facility expenditures.\n\nWe maintain that, during the recession adjustment period, the State agency required counties to\ncontribute a greater percentage toward the non-Federal share of county nursing and psychiatric\nfacility expenditures than during the base period. To illustrate the State\xe2\x80\x99s contribution amounts\nand percentages of the non-Federal share of these expenditures during the base and recession-\nadjustment periods, we inserted additional columns in Tables 5a, 5b, 6a, and 6b in Appendix G.\nTable 1 below summarizes these percentages and demonstrates that the State contribution\npercentage toward the non-Federal share decreased while counties\xe2\x80\x99 contribution percentages\ntoward the same share increased during the recession-adjustment period, as compared to the base\nperiod.\n\n Table 1: County Contribution Increased During the Recession-Adjustment Period\n\n Recession-Adjustment\n Base Period Period\n County State County State\n Expenditure Category Contribution Contribution Contribution Contribution\n County Nursing Facilities 52.93% 47.07% 59.54% 40.46%\n County Psychiatric Facilities 8.37% 91.63% 10.51% 89.49%\n\nServices in County Nursing Facilities\n\nState Agency Comments\n\nIn its February 21, 2014, comments, 17 the State agency restated its position that it paid counties\nthe full amount of the Federal share for expenditures related to services in county-operated\nnursing facilities during both the base and recession-adjustment periods. Further, the State\nagency indicated that the draft report focused on county nursing facilities for which OIG\ndetermined that the State paid counties a lower percentage of the non-Federal share of\nexpenditures in the recession-adjustment period, as compared to the base period, and ignored\nthose county nursing facilities for which the State paid counties a greater percentage of the\nnon-Federal share of expenditures. According to the State agency, it is appropriate to take into\naccount the aggregated total of State payments to all county nursing facilities. Therefore,\n\n16\n This is not considered a traditional CPE funding mechanism because the State agency bore a portion of the\nnon-Federal share for these expenditures, whereas in a traditional CPE funding mechanism, the entire non-Federal\nshare is borne by the local governmental entity. We note that the State agency uses a traditional CPE funding\nmechanism to reimburse local school districts for Medicaid-eligible services.\n17\n Throughout the remainder of this report, we refer to these comments as the \xe2\x80\x9cState agency\xe2\x80\x99s comments\xe2\x80\x9d because\nthe State agency\xe2\x80\x99s March 31, 2014, comments dealt solely with its use of CPEs.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 9\n\x0caccording to the State agency, the amount to be redistributed to counties would be reduced to\n$20,883,357.\n\nOffice of Inspector General Response\n\nWe revised our finding and related recommendation to reflect that the State should redistribute\n$20,883,357 to the counties to correct the problematic funding and return to the correct\npercentages as of September 30, 2008. 18\n\nServices in State Agency- and County-Operated Psychiatric Facilities\n\nState Agency Comments\n\nThe State agency stated that it covered far more than the Federal share of Medicaid payments for\nservices at county-operated psychiatric facilities during the base and recession-adjustment\nperiods. Specifically, the State agency stated that it covered at least 85 percent of the total cost\nof serving uninsured patients at these facilities and the entire cost of patients in these facilities\nthat had not resided for at least 5 years in the county they were being treated in.\n\nFurther, according to the State agency, the increase in the county contribution percentage\nrequired for expenditures for county residents residing in State agency- and county-operated\npsychiatric facilities\xe2\x80\x94from 10 percent in CY 2008 to 12.5 percent in CY 2009\xe2\x80\x94was established\nby State law \xe2\x80\x9cenacted on or about July 1, 2008.\xe2\x80\x9d Therefore, according to the State agency, the\nincrease was the result of State law \xe2\x80\x9cin place as of September 30, 2008,\xe2\x80\x9d which would be\nallowable under the Recovery Act. The State agency stated that the increase from 12.5 percent\nin CY 2009 to 15 percent in CY 2010 \xe2\x80\x9cmight arguably be seen as inconsistent\xe2\x80\x9d with the political\nsubdivision requirement. Nevertheless, the State agency stated that it was already fully\ncompliant with the political subdivision requirement for county psychiatric facilities because it\ndistributed the full Federal share of these expenditures to the counties.\n\nFinally, the State agency stated that we did not consider the portion of the State\xe2\x80\x99s expenditures\nfor psychiatric hospital reimbursements that exceeded annual disproportionate share hospital\n(DSH) allotments that the State agency claimed on its Forms CMS-64 and for which it received\nFederal matching funds. Also, according to the State agency, counties did not participate in all\nof the expenditures related to State agency-operated hospitals. Therefore, the calculation of the\namount billed to the counties in excess of contribution limits needs to consider these factors.\nAccording to the State agency, the amount of excess billing to the counties for these expenditures\nwas $3,144,979.\n\n\n\n18\n The $20,883,357 represents the net amount of 12 counties\xe2\x80\x99 contributions during the recession adjustment period in\nexcess of their percentage contributions during the base period and 5 counties\xe2\x80\x99 percentage contributions during the\nrecession adjustment period that were less than what they contributed during the base period. The total of excess\ncontributions by the 12 counties was $32,761,148. For the five counties whose percentage contributions were less\nthan what they were required to pay during the base period, their total contributions were $11,877,791 less during\nthe recession adjustment period. We determined the amount to be redistributed to the counties in accordance with\nSMDL #10-010 (pages 4\xe2\x80\x935).\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 10\n\x0cOffice of Inspector General Response\n\nWe maintain that our finding regarding services to uninsured patients in State agency- and\ncounty-operated psychiatric facilities is valid. CMS has interpreted the requirement that the\nbase-period calculation for the political subdivision requirement is established by the \xe2\x80\x9cMedicaid\nState plan or State law as of September 30, 2008,\xe2\x80\x9d to mean the State plan or State law that was\n\xe2\x80\x9cin effect on September 30, 2008\xe2\x80\x9d (emphasis added) 19\xe2\x80\x94not whether the State plan or State law\nwas enacted on or before September 30, 2008. Accordingly, the date the State plan or State law\nwas passed or in place is not relevant when calculating base-period calculations.\n\nWhile the State law increasing the county contribution percentage was enacted \xe2\x80\x9con or about July\n1, 2008,\xe2\x80\x9d as the State agency states, the effective date of the increase\xe2\x80\x94from 10 percent to\n12.5 percent\xe2\x80\x94was January 1, 2009, 20 3 months after the political subdivision requirement\xe2\x80\x99s \xe2\x80\x9cin\neffect\xe2\x80\x9d date.\n\nWe disagree with the State agency\xe2\x80\x99s assertion that it complied with the political subdivision\nrequirement for services to uninsured patients in State agency- and county-operated psychiatric\nfacilities. As the counties\xe2\x80\x99 contribution percentage required for this expenditure category\nincreased from 10 percent in CY 2008, to 12.5 percent in CY 2009, and to 15 percent in\nCY 2010, the State\xe2\x80\x99s contribution percentage of the non-Federal share decreased. This was\ninconsistent with the political subdivision requirement.\n\nWe agree that we did not consider the portion of State\xe2\x80\x99s expenditures for psychiatric hospital\nreimbursement that exceeded annual DSH allotments. To determine compliance with political\nsubdivision requirements, we were required to review only the portion of expenditures for\nservices to uninsured patients in State agency- and county-operated psychiatric facilities that\nrequired Federal matching funds (i.e., annual DSH allotments claimed on Forms CMS-64) and\ncalculated the counties\xe2\x80\x99 contributions to the non-Federal share of these expenditures. The\nremaining State expenditures for psychiatric hospital reimbursements are considered an internal\nmatter between the State and the counties because there is no Federal and non-Federal share\namounts associated with these expenditures. Therefore, we maintain that the State should\nredistribute $10,403,984 to counties for services to uninsured patients in State agency- and\ncounty-operated psychiatric facilities.\n\nMedicaid-Eligible School-Based Services\n\nThe State agency did not question our calculation that it would need to redistribute $13,916,801\nto New Jersey school districts to be in compliance with the political subdivision requirement.\n\n\n\n\n19\n CMS, SMDL # 10-023 (November 9, 2010).\n20\n According to New Jersey Public Law 2008, chapter 35: \xe2\x80\x9cFor all calendar years beginning January 1, 2009, the\ntotal amount to be paid by the State \xe2\x80\xa6 shall not exceed 87.5% ....\xe2\x80\x9d\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 11\n\x0cAGGREGATE METHOD\n\nState Agency Comments\n\nThe State agency stated that it identified a \xe2\x80\x9cmethodological error\xe2\x80\x9d\xe2\x80\x94not treating county nursing\nand psychiatric facility expenditures as CPEs\xe2\x80\x94in our calculation of the percentage of the\nnon-Federal share the political subdivisions paid during both the base and recession-adjustment\nperiods. The State agency stated that once this error is corrected, it can demonstrate that political\nsubdivisions contributed 7.8 and 8.87 percent during the base and recession-adjustment periods,\nrespectively, resulting in a discrepancy of just over $100 million, as detailed in Appendix B of\nthe State agency\xe2\x80\x99s response. The State agency stated that it does not rely on the aggregate\nmethodology for measuring its compliance with the political subdivision requirement. Rather,\nthe State agency stated that it would need to redistribute no more than $17,061,780 to political\nsubdivisions to be in compliance under the payment-specific method.\n\nOffice of Inspector General Response\n\nWe maintain that our findings and recommendations are valid. We disagree that our calculation\nof the percentage contribution toward the non-Federal share that New Jersey political\nsubdivisions contributed during both the base and recession-adjustment periods contained a\n\xe2\x80\x9cmethodological error.\xe2\x80\x9d See our comments under the heading \xe2\x80\x9cUse of Certified Public\nExpenditures.\xe2\x80\x9d We note that even with the claimed \xe2\x80\x9cmethodological error,\xe2\x80\x9d according to State\nagency\xe2\x80\x99s calculations, the political subdivisions contributed a greater percentage of the\nnon-Federal share during the recession adjustment period than during the base period.\n\nRegarding the State agency\xe2\x80\x99s statement that it does not rely on the aggregate methodology for\nmeasuring its compliance with the political subdivision requirement, we note that this statement\nis contrary to what the State agency indicated to CMS in memoranda before the start of our audit.\nNevertheless, we note that the State agency may elect to use either the aggregate or payment-\nspecific method to demonstrate its compliance with the political subdivision requirement.\n\nCONCLUSION\n\nState Agency Comments\n\nThe State agency stated that, to demonstrate compliance with the political subdivision\nrequirement under the payment-specific method, the State need redistribute only $13,916,801 to\nthe school districts for Medicaid-eligible school-based health services and $3,144,979 to counties\nfor excess amounts contributed to them for State agency-operated psychiatric facilities in\nCY 2010. The State agency\xe2\x80\x99s comments appear in their entirety as Appendix H.\n\nOffice of Inspector General Response\n\nAfter reviewing the State agency\xe2\x80\x99s comments, we maintain that our findings and\nrecommendations are valid, regardless of whether the State agency relies on either the aggregate\nor payment-specific method. Using CMS guidance, we calculated that the State agency should\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 12\n\x0credistribute approximately $45.2 million to the political subdivisions for it to comply with the\npolitical subdivision requirement and, therefore, retain the increased FMAP funding awarded\nduring the recession-adjustment period.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 13\n\x0c APPENDIX A: RELATED OFFICE OF INSPECTOR GENERAL REPORTS\n\n Table 2: Reviews of States\xe2\x80\x99 Eligibility for the Increased\n Federal Medical Assistance Percentage Under the Recovery and Reinvestment Act\n\n Report Title Report Number Date Issued\nReview of the Quarterly Medicaid Statement of A-02-11-01004 4/17/2012\nExpenditures for the Medical Assistance Program in\nthe U.S. Virgin Islands for the Quarter Ended\nSeptember 30, 2009\nReview of New Jersey\xe2\x80\x99s Compliance With the Reserve A-02-09-01030 9/27/2010\nor Rainy Day Fund Requirement for the Increased\nFederal Medical Assistance Percentage Under the\nAmerican Recovery and Reinvestment Act\nReview of New York State\xe2\x80\x99s Compliance With the A-02-09-01037 8/5/2010\nPrompt Pay Requirements for the Increased Federal\nMedical Assistance Percentage Under the American\nRecovery and Reinvestment Act of 2009\nReview of New York State\xe2\x80\x99s Compliance With the A-02-09-01029 5/26/2010\nPolitical Subdivision Requirement for the Increased\nFederal Medical Assistance Percentage Under the\nAmerican Recovery and Reinvestment Act of 2009\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 14\n\x0c APPENDIX B: FEDERAL ELIGIBILITY REQUIREMENTS FOR THE INCREASED\n FEDERAL MEDICAL ASSISTANCE PERCENTAGE UNDER THE RECOVERY ACT\n\nPursuant to section 5001(g)(2) of the Recovery Act and section 10201(c)(6) of the Affordable\nCare Act, a State is not eligible for the increased FMAP if it requires its political subdivisions to\npay a greater percentage of the non-Federal share of Medicaid expenditures than the percentage\nrequired under the State Medicaid plan or State law on September 30, 2008.\n\nIn SMDL # 10-010, dated June 21, 2010, CMS indicated that States attested to their compliance\nwith the political subdivision requirement of the Recovery Act when they accessed increased\nFMAP funds. States could demonstrate compliance with the requirement under either the\naggregate or payment-specific method of measuring nonvoluntary contributions by their political\nsubdivisions toward the non-Federal share of Medicaid expenditures.\n\nThe aggregate method includes an analysis of total annual program costs (medical and\nadministrative) for the Medicaid program as it existed under the Medicaid State plan on\nSeptember 30, 2008. To measure base period financing of the Medicaid program, the analysis\nshould include total annual program costs for the 12 months ended on September 30, 2008 (base\nperiod). For the base period, the State would determine the percentage of aggregate funding of\nthe non-Federal share that was required to be furnished by political subdivisions. To determine\ncompliance with the Recovery Act, the State would compare the base percentage to the\npercentage of aggregate funding of the non-Federal share required of the political subdivisions\nduring the recession-adjustment period. The State would demonstrate compliance if the\npercentage during the recession-adjustment period is no greater than the percentage during the\nbase period.\n\nUnder the payment-specific approach, the State would compare the percentage of the\nnon-Federal share funded by political subdivisions for each type of expenditure (for which the\nState requires the political subdivisions to share the funding of the non-Federal Share) in the base\nperiod, with the funding obligation for the same types of expenditure during the recession-\nadjustment period. The State would demonstrate compliance if there were no increases in the\npolitical subdivision funding obligations for any type of expenditure.\n\nPursuant to section 10201(c)(6) of the Affordable Care Act and SMDL # 10-023, dated\nNovember 9, 2010, to comply with the political subdivision provision, the maximum percentage\ncontributions that political subdivisions are required to contribute in any quarter must reflect \xe2\x80\x9cthe\nrequirements of the Medicaid State plan, or State law, as provided by this subsection\xe2\x80\x9d as of\nSeptember 30, 2008. If the State plan or State law in effect on September 30, 2008, provided for\nchanges in the percentage contributions or dollar amount contributions by political subdivisions,\nthose changes must be given effect during the recessionary adjustment period.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 15\n\x0cIn \xe2\x80\x9cAmerican Recovery and Reinvestment Act of 2009 Frequently Asked Questions from States,\nJuly 7, 2009,\xe2\x80\x9d CMS stated, that under a CPE financing mechanism, the applicable percentage of\nthe non-Federal share for claiming purposes is no less than 100 percent (but could be more if the\nState does not share the Federal payment with the subdivision). The State should ensure that, as\nthe Federal share increases, the reduction in the non-Federal share is credited proportionately to\nthe contributing public agency CPEs.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 16\n\x0c APPENDIX C: NEW JERSEY REQUIREMENTS FOR CONTRIBUTIONS BY\n POLITICAL SUBDIVISIONS TO THE NON-FEDERAL SHARE OF CERTAIN\n MEDICAID EXPENDITURES\n\nNEW JERSEY REQUIREMENTS\n\nNew Jersey\xe2\x80\x99s requirements for contributions by political subdivisions to the non-Federal share of\ncertain categories of Medicaid expenditures are contained in Title 30 of the N.J.S.A., the New\nJersey Budget Appropriation Acts, and in the Medicaid State plan.\n\nPursuant to New Jersey\xe2\x80\x99s Medicaid State plan (Attachment 4.19-D, \xc2\xa7 3.22), funding for county-\nadministered skilled nursing facilities is composed of: the Federal share, which will be 50\npercent of the cost on the basis of recognition of total actual costs incurred; New Jersey\xe2\x80\x99s share,\nwhich will continue as if there were no governmental peer grouping; and the contribution from\neach county that has a county-administered skilled nursing facility, which will be the difference\nbetween New Jersey\xe2\x80\x99s share and the total non-Federal share of the Medicaid rate. (See the\nfollowing page for a copy of the Medicaid State plan provision related to funding county nursing\nfacilities.)\n\nPursuant to N.J.S.A. \xc2\xa7 30:4-68, each county bears the cost of care and maintenance for a patient\nwho has a legal settlement in the county and is not able to pay the cost of his or her\nhospitalization. N.J.S.A. \xc2\xa7 30:4-78 requires that the county share of payments to State agency-\nand county-operated psychiatric facilities for the reasonable cost of maintenance of county\npatients be 10 percent, as of September 30, 2008. Beginning in CY 2009, the county\ncontribution percentage increased to 12.5 percent, per the New Jersey Budget Appropriation Acts\n(Public Law 2008) and to 15 percent for CY 2010 (Public Law 2009, chapter 68).\n\nProvisions in New Jersey Budget Appropriation Acts for State fiscal years 2008 through 2011\nstated that each local school district that participates in SEMI should receive a percentage of the\nFederal revenue realized for the current year claims. The percentage share should have been\n17.5 percent of claims approved by New Jersey by June 30.\n\nPursuant to New Jersey\xe2\x80\x99s Medicaid State plan, \xc2\xa7 6.3(a), there is local financial participation in\nthe administration of the Medicaid program. County contributions are determined by the annual\nbudgeting process.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 17\n\x0cSTATE PLAN PROVISION FOR FUNDING COUNTY NURSING FACILITIES \n\n\n\n\n\n Attachment 4.19-D\n Page 134\n\n 3.22 FUNDING\n The funding for Class II Nursing Facilities will be comprised of the\n following :\n\n\n 1. The federal share will be 50 percent of the cost based upon \n\n recognition of total actual costs incurred by the Class II \n\n Nursing Facilities . \n\n\n\n 2. The State share will continue as if there were no \n\n governmental peer grouping. \n\n\n\n 3 . The contribution from each county which has a Class II \n\n nursing facility will be the difference between the State share \n\n and the total non-federal share of the Medicaid rate. \n\n\n\n\n\n 04-11-MA(NJ)\n\n TN 04 -{ l Approval Date JUN- 6 2006 \n\n Supersedes TN: 95-14-MA (NJ) Effective Date OCT - 3 2004 \n\n\n\n\n\nNew Jersey Did Not Comply With Recovery ActRequirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01 039) 18\n\x0c APPENDIX D: AUDIT SCOPE AND METHODOLOGY\n\nSCOPE\n\nWe reviewed New Jersey political subdivisions\xe2\x80\x99 contributions to the non-Federal portion of total\nMedicaid expenditures reported on the State agency\xe2\x80\x99s Forms CMS-64 for the 12-month base\nperiod (ended September 30, 2008) and for the recession-adjustment period (October 1, 2008,\nthrough December 31, 2010).\n\nWe did not assess the State agency\xe2\x80\x99s overall internal control structure. We limited our review of\ninternal controls to those applicable to our objective, which did not require an understanding of\nall internal controls over the Medicaid program. We reviewed the State agency\xe2\x80\x99s procedures for\ndisbursing the increased FMAP benefit to its political subdivisions. We did not assess the\nappropriateness of Medicaid payments for any of the categories of expenditures for which the\nState agency requires its political subdivisions to contribute to the non-Federal share of Medicaid\nexpenditures.\n\nWe performed our fieldwork at the State agency\xe2\x80\x99s offices in Trenton, New Jersey, and at five\ncounty government offices from September 2011 through December 2012.\n\nMETHODOLOGY\n\nTo accomplish our objective, we:\n\n \xe2\x80\xa2 reviewed applicable Federal and State requirements;\n\n \xe2\x80\xa2 met with CMS financial and program management officials to identify New Jersey\xe2\x80\x99s\n requirements for local financial participation toward Medicaid claims;\n\n \xe2\x80\xa2 met with State agency and county government officials to gain an understanding of New\n Jersey\xe2\x80\x99s requirements and procedures for determining the political subdivisions\xe2\x80\x99 share of\n Medicaid payments and any changes made to those requirements and procedures\n beginning October 1, 2008;\n\n \xe2\x80\xa2 obtained and reviewed total computable Medicaid expenditures (medical and\n administrative) on the State agency\xe2\x80\x99s Forms CMS-64 for all quarters in the base and\n recession-adjustment periods;\n\n \xe2\x80\xa2 computed the total non-Federal share of Medicaid expenditures reported on the State\n agency\xe2\x80\x99s Forms CMS-64 for all quarters in the base and recession-adjustment periods, on\n the basis of Federal requirements for determining the non-Federal share;\n\n \xe2\x80\xa2 obtained and reviewed the State agency\xe2\x80\x99s spreadsheets detailing its political subdivisions\xe2\x80\x99\n contributions to the non-Federal share of Medicaid expenditures during the base and\n recession-adjustment periods;\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 19\n\x0c \xe2\x80\xa2 obtained the source data 21 for the Medicaid expenditures in each of the four expenditure\n categories for which New Jersey requires political subdivisions to contribute to the non-\n Federal share of Medicaid expenditures 22 and, for each expenditure category, determined\n the political subdivisions\xe2\x80\x99 contributions and percentages of the non-Federal share of\n Medicaid expenditures for the base and recession-adjustment periods;\n\n \xe2\x80\xa2 computed aggregate contributions by the political subdivisions for the four expenditure\n categories and the respective percentages of non-Federal share for the base and recession-\n adjustment periods;\n\n \xe2\x80\xa2 determined the State agency\xe2\x80\x99s compliance with the political subdivision requirement of\n the Recovery Act by comparing the two percentages for the total political subdivisions\xe2\x80\x99\n contributions to the non-Federal share of Medicaid expenditures;\n\n \xe2\x80\xa2 summarized results, including the amount of excess contributions to the non-Federal\n share of Medicaid expenditures by political subdivisions during the recession-adjustment\n period; and\n\n \xe2\x80\xa2 discussed our results with State agency officials.\n\nSee Appendix E for our calculation of New Jersey\xe2\x80\x99s compliance with the political subdivision\nrequirement of the Recovery Act under the aggregate method and Appendix F for the political\nsubdivisions\xe2\x80\x99 contributions to the non-Federal share for each of the categories of expenditures\nfor which New Jersey requires local financial participation.\n\nWe conducted this performance audit in accordance with generally accepted government\nauditing standards. Those standards require that we plan and perform the audit to obtain\nsufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions\nbased on our audit objectives. We believe that the evidence obtained provides a reasonable basis\nfor our findings and conclusions based on our audit objectives.\n\n\n\n\n21\n Source data included county nursing facilities\xe2\x80\x99 Medicaid cost reports and reimbursement data obtained from State\nagency officials, the Medicaid Management Information System, State agency- and county-operated psychiatric\nfacilities\xe2\x80\x99 DSH payment and State appropriations information, local school districts\xe2\x80\x99 SEMI expenditures\ninformation, and county welfare agencies\xe2\x80\x99 administrative expenditures reports.\n22\n For the quarter ended June 30, 2008, the amount of administrative costs indicated on the source document was\n$180,000 ($90,000 Federal share) less than what was reported on the Form CMS-64. The State agency stated that\nthis variance was due to a clerical error.\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 20\n\x0c APPENDIX E: AGGREGATE METHOD CALCULATION\n\n Table 3: Political Subdivisions\xe2\x80\x99 Percentage Contribution of the Non-Federal Share of\n Total Medicaid Program Costs\n\n Table 3a: Base Period (10/1/07-9/30/08)\n Subdivisions\xe2\x80\x99\n Total Medicaid Contribution\n Federal Share Non-Federal\n Expenditures to the Non-\n (From CMS-64) Share\n (From CMS-64) Federal\n Share\n $10,059,236,686 $5,074,091,049 $4,985,145,637 $241,277,535\n 100.00% 4.84%\n\n Table 3b: Recession-Adjustment Period (10/1/08-12/31/10)\n Subdivisions\xe2\x80\x99\n Total Medicaid Contribution\n Federal Share Non-Federal\n Expenditures to the Non-\n (From CMS-64) Share\n (From CMS-64) Federal\n Share\n $23,671,092,593 $14,043,735,642 $9,627,356,951 $611,175,502\n 100.00% 6.35%\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 21\n\x0c APPENDIX F: POLITICAL SUBDIVISIONS\xe2\x80\x99 CONTRIBUTION TO THE NON-FEDERAL SHARE OF\n NEW JERSEY\xe2\x80\x99S MEDICAID EXPENDITURES\n\n Table 4a: Base Period (10/1/2007-9/30/2008)\n Subdivision\n Contribution to\n Total Non-Federal the Non-\n Medicaid Services Expenditures Federal Share Share Federal Share\n County Nursing Facilities $358,180,482 $179,090,241 $179,090,241 $94,787,436\n State Agency- and County-Operated\n 597,177,616 298,588,808 298,588,808 20,799,288\n Psychiatric Facilities\n School-Based Services 89,656,852 44,828,426 44,828,426 73,966,903\n Certain Administrative Costs Incurred by\n 163,157,686 84,835,066 78,322,620 51,723,908\n Counties\n Subtotal 1,208,172,636 607,342,541 600,830,095 241,277,535\n Subtotal\xe2\x80\x94Other Expenditures 8,851,064,050 4,466,748,508 4,384,315,542 0\n Total $10,059,236,686 $5,074,091,049 $4,985,145,637 $241,277,535\n\n Table 4b: Recession-Adjustment Period (10/1/2008-12/31/10)\n Subdivision\n Contribution to\n Total Non-Federal the Non-\n Medicaid Services Expenditures Federal Share Share Federal Share\n County Nursing Facilities $795,761,095 $485,076,117 $310,684,978 $184,993,887\n State Agency- and County-Operated\n 981,297,723 490,648,862 490,648,862 44,565,613\n Psychiatric Facilities\n School-Based Services 351,937,576 215,731,078 136,206,498 290,348,500\n Certain Administrative Costs Incurred by\n 329,840,281 172,885,475 156,954,806 91,267,502\n Counties\n Subtotal 2,458,836,675 1,364,341,532 1,094,495,144 611,175,502\n Subtotal\xe2\x80\x94Other Expenditures 21,212,255,918 12,679,394,110 8,532,861,807 0\n Total $23,671,092,593 $14,043,735,642 $9,627,356,951 $611,175,502\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 22\n\x0c APPENDIX G: AMOUNTS TO BE REDISTRIBUTED TO POLITICAL SUBDIVISIONS\n FOR NEW JERSEY TO COMPLY WITH RECOVERY ACT REQUIREMENTS\n\n Table 5a: County Nursing Facility Expenditures\n Base Period (10/1/2007-9/30/2008)\n\n County State\n Contribution Contribution\n Percentage to Percentage to\n Amount the Non- the Non-\n Total Federal Non-Federal Reimbursed County State Federal Federal\n County Expenditures Share Share to Counties Contribution Contribution Share Share\n Atlantic $13,021,968 $6,510,984 $6,510,984 $11,223,350 $1,798,619 $4,712,366 27.62 72.38\n Bergen 63,493,085 31,746,542 31,746,542 47,695,010 15,798,074 15,948,468 49.76 50.24\nBurlington 14,409,130 7,204,565 7,204,565 11,396,745 3,012,385 4,192,180 41.81 58.19\n Camden 24,374,481 12,187,241 12,187,241 19,245,559 5,128,922 7,058,318 42.08 57.92\n Cape May 13,906,850 6,953,425 6,953,425 10,598,562 3,308,288 3,645,137 47.58 52.42\nCumberland 11,488,493 5,744,247 5,744,247 10,079,992 1,408,502 4,335,745 24.52 75.48\nGloucester 6,762,138 3,381,069 3,381,069 4,300,247 2,461,891 919,178 72.81 27.19\n Hudson 18,038,267 9,019,133 9,019,133 16,687,269 1,350,998 7,668,135 14.98 85.02\n Mercer 13,312,348 6,656,174 6,656,174 7,932,140 5,380,208 1,275,966 80.83 19.17\n Middlesex 33,129,748 16,564,874 16,564,874 24,465,524 8,664,224 7,900,650 52.30 47.70\nMonmouth 24,432,923 12,216,462 12,216,462 18,817,645 5,615,278 6,601,183 45.96 54.04\n Morris 26,072,363 13,036,182 13,036,182 18,871,789 7,200,574 5,835,608 55.24 44.76\n Passaic 39,603,536 19,801,768 19,801,768 24,059,591 15,543,945 4,257,823 78.50 21.50\n Salem 6,634,785 3,317,392 3,317,392 5,088,012 1,546,773 1,770,619 46.63 53.37\n Sussex 6,232,630 3,116,315 3,116,315 5,244,991 987,638 2,128,676 31.69 68.31\n Union 28,956,895 14,478,447 14,478,447 15,664,559 13,292,335 1,186,112 91.81 8.19\n Warren 14,310,842 7,155,421 7,155,421 12,022,062 2,288,780 4,866,641 31.99 68.01\n Total $358,180,482 $179,090,241 $179,090,241 $263,393,046* $94,787,436* $84,302,805* 52.93 47.07\n*\n Differences in total calculations are due to rounding.\n\n\n\n\n New Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\n Federal Medical Assistance (A-02-11-01039) 23\n\x0c Table 5b: County Nursing Facility Expenditures\n Recession-Adjustment Period (10/1/2008-12/31/10)\n\n County State\n Contribution Contribution\n Percentage to Percentage\n Amount the Non- to the Non-\n Total Federal Non-Federal Reimbursed County State Federal Federal\n County Expenditures Share Share to Counties Contribution Contribution Share Share\n Atlantic $29,611,714 $18,056,048 $11,555,666 $25,553,711 $4,058,003 $7,497,663 35.12 64.88\n Bergen 127,649,860 77,728,734 49,921,126 111,879,493 15,770,367 34,150,759 31.59 68.41\n Burlington 30,991,405 18,888,664 12,102,741 27,171,559 3,819,845 8,282,895 31.56 68.44\n Camden 56,494,938 34,444,455 22,050,483 44,257,491 12,237,447 9,813,035 55.50 44.50\n Cape May 30,278,368 18,455,519 11,822,849 25,035,161 5,243,207 6,579,642 44.35 55.65\n Cumberland 25,281,365 15,405,190 9,876,175 23,018,525 2,262,841 7,613,335 22.91 77.09\n Gloucester 15,175,715 9,255,802 5,919,913 9,228,399 5,947,316 0 100.46 0.00\n Hudson 43,896,435 26,769,931 17,126,504 42,355,618 1,540,817 15,585,687 9.00 91.00\n Mercer 27,741,341 16,907,657 10,833,684 16,304,246 11,437,096 0 105.57 0.00\n Middlesex 73,761,985 44,960,441 28,801,544 56,933,752 16,828,233 11,973,311 58.43 41.57\n Monmouth 53,460,359 32,593,161 20,867,198 41,460,534 11,999,825 8,867,374 57.51 42.49\n Morris 58,646,356 35,767,038 22,879,318 44,139,539 14,506,817 8,372,501 63.41 36.59\n Passaic 97,044,684 59,198,863 37,845,821 54,774,592 42,270,092 0 111.69 0.00\n Salem 15,776,070 9,622,486 6,153,584 11,539,805 4,236,265 1,917,319 68.84 31.16\n Sussex 15,626,673 9,532,099 6,094,574 12,792,098 2,834,575 3,259,999 46.51 53.49\n Union 61,944,954 37,752,995 24,191,959 37,278,689 24,666,265 0 101.96 0.00\n Warren 32,378,872 19,737,033 12,641,839 27,043,994 5,334,877 7,306,962 42.20 57.80\n Total $795,761,095 $485,076,117 $310,684,978 $610,767,207* $184,993,887* $125,691,090* 59.54 40.46\n*\n Differences in total calculations are due to rounding.\n\n\n\n\n New Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\n Federal Medical Assistance (A-02-11-01039) 24\n\x0c Table 5c: County Nursing Facility Expenditures\n Adjustment of Increased Federal Medicaid Assistance\n\n Maximum\n County Allowable County\n Contribution Contribution Adjustment of\n During Recession- During Recession- Increased Federal\n Adjustment Adjustment Medicaid\n County Period Period Assistance\n Atlantic $4,058,003 $3,192,180 $865,823\n Bergen 15,770,367 24,842,316 (9,071,950)\n Burlington 3,819,845 5,060,419 (1,240,573)\n Camden 12,237,447 9,279,805 2,957,642\n Cape May 5,243,207 5,625,054 (381,847)\n Cumberland 2,262,841 2,421,660 (158,819)\n Gloucester 5,947,316 4,310,525 1,636,791\n Hudson 1,540,817 2,565,421 (1,024,603)\n Mercer 11,437,096 8,756,904 2,680,192\n Middlesex 16,828,233 15,064,590 1,763,642\n Monmouth 11,999,825 9,591,576 2,408,248\n Morris 14,506,817 12,637,460 1,869,357\n Passaic 42,270,092 29,708,123 12,561,968\n Salem 4,236,265 2,869,181 1,367,084\n Sussex 2,834,575 1,931,524 903,051\n Union 24,666,265 22,210,090 2,456,174\n Warren 5,334,877 4,043,702 1,291,176\n Total $184,993,887 $164,110,530 $20,883,357\n *\n Differences in total calculations are due to rounding.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 25\n\x0c Table 6a: State Agency- and County-Operated Psychiatric Facility Expenditures\n Base Period (10/1/2007-9/30/2008)\n\n State\n County Contribution\n Contribution Percentage\n State Percentage to to the Non-\n Psychiatric Total Non-Federal County State the Non- Federal\n Facility Expenditures Federal Share Share Contribution Contribution Federal Share Share\n Ancora $154,571,944 $77,285,972 $77,285,972 $5,023,601 $72,262,371 6.50 93.50\n Trenton 122,091,291 61,045,646 61,045,646 4,176,464 56,869,181 6.84 93.16\n Greystone 136,806,669 68,403,335 68,403,335 4,793,715 63,609,620 7.00 92.99\n Hagedorn 45,357,098 22,678,549 22,678,549 1,018,167 21,660,382 4.48 95.51\n Subtotal $458,827,002 $229,413,501 $229,413,501 $15,011,946* 214,401,555* 6.54 93.46\n\n State\n County Contribution\n Contribution Percentage\n County Percentage to to the Non-\n Psychiatric Total Non-Federal County State the Non- Federal\n Facility Expenditures Federal Share Share Contribution Contribution Federal Share Share\n Camden $34,436,472 $17,218,236 $17,218,236 $1,358,887 15,859,349 7.89 92.11\n Essex 45,840,771 22,920,386 22,920,386 1,757,818 21,162,567 7.66 92.33\n Burlington 4,266,128 2,133,064 2,133,064 172,028 1,961,036 8.06 91.94\n Bergen Pines 34,781,239 17,390,620 17,390,620 1,698,377 15,692,243 9.76 90.23\n Hudson 17,814,136 8,907,068 8,907,068 749,938 8,157,130 8.41 91.58\n Union 1,211,868 605,934 605,934 50,293 555,641 8.30 91.70\n Subtotal 138,350,614 69,175,307 69,175,307 5,787,342* 63,387,965* 8.37 91.63\n Total $597,177,616 $298,588,808 $298,588,808 $20,799,288* 277,789,520* 6.97 93.03\n*\n Differences in total calculations are due to rounding.\n\n\n\n\n New Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\n Federal Medical Assistance (A-02-11-01039) 26\n\x0c Table 6b: State Agency- and County-Operated Psychiatric Facility Expenditures\n Recession-Adjustment Period (10/1/2008-12/31/10)\n\n County State\n Contribution Contribution\n Percentage Percentage\n State to the Non- to the Non-\n Psychiatric Total Non-Federal County State Federal Federal\n Facility Expenditures Federal Share Share Contribution Contribution Share Share\n Ancora $274,905,860 $137,452,930 $137,452,930 $11,958,696 $125,494,234 8.70 91.30\n Trenton 169,655,133 84,827,567 84,827,567 7,796,649 77,030,917 9.19 90.81\n Greystone 192,956,827 96,478,414 96,478,414 8,577,291 87,901,123 8.89 91.11\n Hagedorn 83,090,923 41,545,462 41,545,462 2,539,922 39,005,539 6.11 93.89\n Subtotal $720,608,743 $360,304,372 $360,304,372 $30,872,559* $329,431,813* 8.57 91.43\n\n County State\n Contribution Contribution\n Percentage Percentage\n County to the Non- to the Non-\n Psychiatric Total Non-Federal County State Federal Federal\n Facility Expenditures Federal Share Share Contribution Contribution Share Share\n Camden $70,336,351 $35,168,176 $35,168,176 $3,512,813 $31,655,362 9.99 90.01\n Essex 96,341,920 48,170,960 48,170,960 4,440,633 43,730,327 9.22 90.78\n Burlington 4,969,300 2,484,650 2,484,650 269,764 2,214,886 10.86 89.14\n Bergen Pines 57,392,127 28,696,064 28,696,064 3,593,700 25,102,364 12.52 87.48\n Hudson 18,487,221 9,243,611 9,243,611 1,133,126 8,110,484 12.26 87.74\n Union 13,162,061 6,581,031 6,581,031 743,018 5,838,012 11.29 88.71\n Subtotal 260,688,980 130,344,490 130,344,490 13,693,054* 116,651,436* 10.51 89.49\n Total $981,297,723 $490,648,862 $490,648,862 $44,565,613* $446,083,249* 9.08 90.92\n*\n Differences in total calculations are due to rounding.\n\n\n\n\n New Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\n Federal Medical Assistance (A-02-11-01039) 27\n\x0c Table 6c: State Agency- and County-Operated Psychiatric Facility Expenditures\n Redistribution of Increased Federal Medicaid Assistance\n\n Maximum Allowable\n County Contribution County Contribution Redistribution of\n State Psychiatric During Recession- During Recession- Increased Federal\n Facility Adjustment Period Adjustment Period Medicaid Assistance\n Ancora $11,958,696 $8,934,462 $3,024,234\n Trenton 7,796,649 5,803,514 1,993,135\n Greystone 8,577,291 6,761,220 1,816,071\n Hagedorn 2,539,922 1,865,208 674,714\n Subtotal $30,872,559* $23,364,405* $7,508,153*\n\n Maximum Allowable\n County Contribution County Contribution Redistribution of\n County Psychiatric During Recession- During Recession- Increased Federal\n Facility Adjustment Period Adjustment Period Medicaid Assistance\n Camden $3,512,813 $2,775,521 $737,292\n Essex 4,440,633 3,694,344 746,288\n Burlington 269,764 200,383 69,381\n Bergen Pines 3,593,700 2,802,472 791,228\n Hudson 1,133,126 778,274 354,852\n Union 743,018 546,228 196,790\n Subtotal $13,693,054* $10,797,223* $2,895,831*\n\n Total $44,565,613* $34,161,629* $10,403,984*\n *\n Differences in total calculations are due to rounding.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 28\n\x0c Table 7a: School-Based Health Services Expenditures\n Base Period (10/1/2007-9/30/2008)\n\n Local School\n School-Based Distribution to Local Districts\xe2\x80\x99 Local School Districts\xe2\x80\x99\n Health Services Federal Non-Federal School Districts Portion of Total Percentage of Non-\n Expenditures Share Share (17.5% x Expenditures) Expenditures Federal Share\n $89,656,852 $44,828,426 $44,828,426 $15,689,949* $73,966,903* 165.00*\n *\n Differences in total calculations are due to rounding.\n\n Table 7b: School-Based Health Services Expenditures\n Recession-Adjustment Period (10/1/2008-12/31/10)\n\n Local School\n School-Based Distribution to Local Districts\xe2\x80\x99 Local School Districts\xe2\x80\x99\n Health Services Federal Non-Federal School Districts Portion of Total Percentage of Non-\n Expenditures Share Share (17.5% x Expenditures) Expenditures Federal Share\n $351,937,576 $215,731,078 $136,206,498 $61,589,076* $290,348,500* 213.70*\n *\n Differences in total calculations are due to rounding.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 29\n\x0c Table 7c: School-Based Health Services Expenditures\n Redistribution of Increased Federal Medicaid Assistance\n\n Quarters End 12/31/2008 and 3/31/2009\xe2\x80\x9458.78 Percent FMAP\n\n Local School\n Percentage Distribution to Local\n School-Based Decrease in Districts\xe2\x80\x99\n Federal Non-Federal Decrease in School Districts\n Health Services Non-Federal Proportionate Share\n Share Share Non-Federal (17.5% x\n Expenditures Share of Reduction in the\n Share Expenditures)\n Non-Federal Share\n $36,557,844 $21,488,701 $15,069,143 $3,209,779 17.56 $6,397,623* $1,123,423*\n\n Quarters Ended 6/30/2009 through 12/31/2010\xe2\x80\x9461.59 Percent FMAP\n\n Local School\n Percentage Distribution to Local\n School-Based Decrease in Districts\xe2\x80\x99\n Federal Non-Federal Decrease in School Districts\n Health Services Non-Federal Proportionate Share\n Share Share Non-Federal (17.5% x\n Expenditures Share of Reduction in the\n Share Expenditures)\n Non-Federal Share\n $315,379,732 $194,242,377 $121,137,355 $36,552,511 23.18 $55,191,453 $12,793,379*\n\n Total Local School Districts\xe2\x80\x99 Redistribution of the Proportionate Share of Reduction in the Non-Federal\n Share During the Recession-Adjustment Period $13,916,801*\n *\n Differences in total calculations are due to rounding.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A-02-11-01039) 30\n\x0c APPENDIX H: STATE AGENCY COMMENTS DATED FEBRUARY 21,2014 \n\n\n\n\n\n State of New Jersey\n DEPARTMENT OF H UMAN SERVICES\n D IVISION OF MEDICAL ASS ISTANCE AND HEALTH SERVICES\n CHRIS CHRISTIE P.O. Box 712 JENNIFER VELEZ\n Governor Trenton, NJ 08625-07 12 Commissioner\n\n KIM GUADAGNO \t VALERIE HARR\n Lt. Governor \t Director\n\n February 21 , 2014\n\n James P. Edert\n Regional Inspector General for Audit Services\n Department of Health and Human Services\n Office of Inspector General\n Office of Audit Services, Region II\n Jacob K. Javits Federal Building\n 26 Federal Plaza, Room 3900\n New York, NY 10278\n\n Re: \t New Jersey Response-Draft Audit Report on Political Subdivision Requirement\n Under the Recovery Act, A-02-11-01039\n\n Dear Mr. Edert:\n\n This letter provides the New Jersey Department of Human Services\'s ("State" or "DHS")\n response to the Department of Health and Human Services Office of the Inspector General\'s\n ("OIG") draft audit report A-02-11-01039 entitled New Jersey Did Not Comply with Recovery Act\n Requirements for Receiving Increased Federal Medicaid Assistance.\n Section 5001 (g)(2) of the American Recovery and Reinvestment Act of 2009 ("ARRA"), as\n clarified by section 10201(c)(6) of the Patient Protection and Affordable Care Act ("ACA"),\n requires, as a condition of eligibility for the enhanced Federal medical assistance percentage\n ("FMAP") provided by ARRA, that a state not require political subdivisions to pay a greater\n percentage of the non-federal share of expenditures subject to the enhanced FMAP, or of\n disproportionate share hospital ("DSH") expenditures, than would have been required under the\n state plan, state law, or both, as in effect on September 30, 2008.\n DHS does not agree that OIG\'s findings support the draft audit report\'s recommendation that the\n State redistribute approximately $57 million in increased FMAP funding to New Jersey political\n subdivisions. As explained below, the State would need to distribute only $1 7,061 ,780 to local\n j urisdictions to be fully compliant with the local jurisdictions share requirement. As for the six\xc2\xad\n month ARRA extension period ended June 30, 2011 , we are reviewing the data and will take\n appropriate action depending on how the issues identified in the draft audit are resolved.\n\n In State Medicaid Director Letter (SMDL) # 10-010 ("SMDL 10-01 0"), issued on June 21 , 2010,\n CMS established two ways that a state may demonstrate compliance with the local jurisdictions\n share requirement: (1) the payment-specific method and (2) the aggregate method. Letter from\n Ctr. for Medicaid, CHIP, and Survey & Certification, CMS, to State Medicaid Directors 4 (June\n 21 , 2010), at 3-5.\n\n\n\n\n New Jersey Is An Equal Opportunity Employer\n\n\n\n\nNew J ersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medica/Assistance (A -02-1 1-01039) 31\n\x0c James P. Edert\n February 2 1,2014\n Page 2\n\n I. Payment-Specific Method\n\n Under the payment-speci fic methodology, a state demonstrates compliance if the percentage of\n the non-Federal expenditures paid for by the state\'s politica l subdivisions , for an expenditure\n type in t he ARRA Period (October 1, 2008 through December 31, 2010}, does not increase\n above the comparable percentage used to measure compliance during the Base Period\n (October 1, 2007 through September 30, 2008) .\n\n OIG\'s draft report concludes that New Jersey did not comply with the ARRA political subdivision\n requirement for expenditures for services provided in county nursing facilit ies, services to\n uninsured patients in county and state psychiatric hospitals, and Medica id-eligible health\n services provided by local school districts. T his response discusses a primary flaw in t he draft\n audit report\'s analysis, which if corrected, demonstrates that the State complied in full with the\n political subdivision requirement for both county psychiatric facilities and county nursing\n facilities, before addressing ea ch expenditure type in turn.\n\n A. Compliance in the CPE Context\n\n The draft audit report misreads the ARRA politica l subdivision requirement as be ing violated\n even where, as here, the reported Medicaid expenditure is based on certified public\n expenditures (CPE) and the State passes throug h to counties the full Federal share of Medicaid\n expenditures, during both the Base and ARRA Periods. Such a result directly contradicts the\n purpose of the political subdivision requirement and specific CMS guidance addressing the\n application of this requirement in the CPE context.\n\n In SMDL 10-010, CMS exp lained that Section 5001(g)(2) of ARRA "seeks to prohibit States\n from shifting Medicaid costs to political subdivisions and to ensure that States share the\n increased Federal matching dollars generated by the FMAP increase w ith political subdivisions."\n SMDL 10-010, at 2 (emphases added). The agency further clarified that "[i]n measuring\n compliance with this provision . .. , CMS seeks to ensure that political subdivisions are not\n shouldering a greater percentage of fund ing of the Medicaid program without stifl ing States\'\n ability to manage or modify their Medica id programs." /d. (emphasis added). The quoted\n language expressly provides that CMS understands Congress\'s intent as req uiring States to\n share increased Federal reimbursement from the enhanced FMAP with political subd ivisions.\n\n In a gu idance document addressing states\' frequent!\'/ asked questicns about .A.RRA , CMS\n reiterated that Section 5001 (g)(2) of ARRA focuses only on whether the State shares temporary\n increases in FMAP with its political subdivisions. Specifically, CMS cla rified that "[u]nder a CPE\n financing mechanism[,] the applicable [county] percentage of the non-Federal share for [ARRA\n Federal) claiming purposes is no less than 100 percent (but could be more if the State does not\n share with the subdivision the Federal payment)." Ctr. for Medicaid and State Operations, CMS,\n American Recovery and Reinvestment Act of 2009 Frequently Asked Questions from States 14\n (July 7, 2009) (emphasis added) [hereinafter CMS ARRA FAQs). Under CMS\'s interpretation ,\n when states share with counties the full Federal payment, the county percentage of the non\xc2\xad\n Federal share of CPEs for ARRA Federal claiming purposes is 100 percent.\n\n The county percentage does not decrease below 100 percent even if the State, in addition to\n passing the full federal contribution to the county, also reimbu rses the county for any part of the\n expenditures out of state funds. In effect, CMS views reimbursements to the counties of the\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera/ Medica/ Assistance (A -02-1 1-01039) 32\n\x0c James P. Edert\n Febmary 21 ,2014\n Page 3\n\n non-federal share in CPE cases as an internal matter between the State and the counties , and\n considers the counties, for ARRA purposes, as bearing the cost of all expenditures less the\n Federal reimbursement the State passed through to the counties .1\n\n The State fully complied with the political subdivision requirement for expenditures for county\n psychiatric facilities and county nursing facilities, both of which were incurred on a CPE basis.\n Table 1 below lists the total amount certified for each category of expenditure, the federal share,\n the non-federal share, and the amount of such expenditures reimbursed to counties. All figures\n have been taken from Tables 4a , 4b, Sa, and Sb of Appendix G to the draft audit report. For\n each service type, the amount reimbursed to the counties is well in excess of 100 percent, the\n full amount, of the Federal share. This demonstrates that all of the enhanced FMAP the State\n received for these services during the ARRA period was passed through in full to the political\n subdivisions. Thus, the State need not redistribute any additional funds on account of the county\n nursing or county psychiatric fact!ity claims.\n\n Table 1 - Amount Reimbursed to Counties for Certifying County Facilities Relative to\n Non-Federal Share\n\n A B c D E F\n County\n Percentage\n Total Amount of Non-\n Federal Non-Federal\n Type of Service Expenditures Reimbursed Federal\n Share Share\n Certified to Counties 2 Share Per\n CMS\n Guidance\n Base Period (10/1/2007-9/30/2008)\n County Nursing $358,180,482 $179,090,241 $179,090,241 $263 ,393,046 100%\n Facilities\n County Psychiatric 138,350,614 69,1 75,307 69,175,307 132,563,272 100%\n Facilities\n\n ARRA Period (1 0/1/2008-12/31/2010)\n County Nursing 795,761 ,095 485,076,117 310,684,978 610,767,207 100%\n Facilities\n County Psychiatric 260,688,980 \xe2\x80\xa2j 30, 344,490 130,344,490 246,995,926 100%\n Facilities\n\n\n\n\n 1\n This follows from the fact that in the CPE context, the expenditure reported by the certifying entity, rather than a\n payment from the State Medicaid agency, is the activity that generates the federal matching payment.\n\n\n 2\n The amount reimbursed to counties for county nursing facilities is prov ided in Table 4a of the draft audit. For\n county psych iatric facilities, the amount re imbursed to counties was calculated by subtract ing the total county\n contribution from the tota l expenditures. See draft audit tables Sa and 5b.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera/Medica/Assistance (A -02-1 1-01039) 33\n\x0c James P. Edert\n February 21,2014\n Page4\n\n B. Corrections to the OIG Calculations Specific to Particular Provider Types\n\n 1. County Nursing Facilities\n\n As already explained, the State fully complied with the ARRA political subdivisions requirement\n for county nursing facility expenditures because it paid the counties the full amount of the\n Federal share both during the Base and ARRA period. But, even using OIG\'s methodology, the\n draft audit report significantly overstates the amount to be redistributed to the counties relating\n to county nursing facility expenditures. The draft audit report focuses only on county nursing\n facilities for which OIG determined that the State paid counties a lower percentage of the non\xc2\xad\n Federal share of expenditures in the ARRA Period , as compared to the Base Period, and\n ignores the county nursing facilities for which the State paid political subdivisions a greater\n percentage of the non-Federal share of expenditures. CMS has clarified that presenting data on\n a combined basis for all county nursing homes in a State is the appropriate means of\n demonstrating compliance with the ARRA local jurisdiction requi rement. SMDL #10-010 permits\n the comparison of the percentage of the non-federal share funded by local jurisdictions "for each\n type of expenditure" in the Base and ARRA Periods. See June 21 , 2010 SMDL, at 4. CMS\n used the term "type of expenditure" to refer generally to each category of service, not to\n particular service providers. It is therefore appropriate to take into account the aggregated total\n of State payments to all county nursing facilities . As illustrated in Table 2 below, once all county\n nursing payments are aggregated, the OIG calculation of the amount to be redistributed to the\n counties would be reduced to $20,883,357 .\n\n Table 2 - Cumulative State Payments to Counties for County Nursing Homes Based on\n OIG Analysis\n\n A 8 c D\n Maximum\n Redistribution\n County Allowable\n of Increased\n Contribution County\n County Federal\n During ARRA Contribution\n Med icaid\n Period During ARRA\n Assistance\n Period\n Atlantic $4,058,003 $3,192, 180 $865,823\n Bergen 15 ,770,367 24 ,842,316 -9,071 ,949\n Burlington 3,819,845 5,060,419 -1 240,574\n Camden 12,237 447 9 279,805 2,957,642\n Cape May 5,243,207 5,625,054 -381,847\n Cumberland 2,262 ,841 2,421 ,660 -158,819\n Gloucester 5,947 ,316 4,310,525 1,636,79 1\n Hudson 1,540,817 2,565,421 -1 ,024,603\n Mercer 11,437 ,096 8,756,904 2,680,192\n Middlesex 16,828,233 15,064,590 1,763,642\n Monmouth 11 ,999,825 9,591 ,576 2,408,248\n Morris 14,506,817 12,637 ,460 1,869,357\n Passaic 42,270 ,092 29,708,123 12,561 ,968\n Salem 4,236,265 2,869, 181 1,367,084\n Sussex 2,834,575 1,931 ,524 903,051\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera!Medica!Assistance (A-02-11-01039) 34\n\x0c James P. Edert\n February 21, 20 14\n Page 5\n\n Union 24,666 ,265 22 ,210,090 2,456,174\n Warren 5,334 ,877 4,043,702 1,291 ,176\n Total $184,993,887 $164,110,530 $20,883,357\n\n 2. Psyc hiatric Fac ilities\n\n As explained above in section I.A, per CMS guidance, the State fully complied with the local\n jurisdiction requirement for the county psychiatric facilities because both during the Base and\n ARRA Periods it covered at least 85 percent of the total cost of serving uninsured patients at\n those facil ities.3 And it covered the entire cost of serving patients in these facilities that had not\n resided for at least five years in the county. Thus, for county psychiatric facilities the State\n covered far more than the federa l share of Medicaid payments, which even under ARRA\n remained at 50%.\n\n In addition, the draft audit report, even under the general approach OIG adopted , is flawed by\n not (1) giving effect to State law rega rding the county share of state and county psychiatric\n facilities that was in effect prior to September 30, 2008, or (2) taking into account that the\n State\'s claimed psychiatric faci lity expenditures we re primarily disproportionate share hospital\n (DSH) claims that substantially exceeded the State\'s Institutions for Mental Disorders (IMD)\n annual allotment, so that only a portion of the amounts claimed we re actually mat ched by\n federal funds.\n\n a) Pre-September 30, 2008 Stat e Law\n\n The New Jersey State Medicaid plan provides for a cost reimbursement methodology based on\n the certification of expenditures by the state and county hospitals. For state hospitals each\n county is billed a portion of the cost of serving patients who have been residents of that county\n for at least five years. For county hospitals, the State reimburses most of the hospitals\'\n expenditures fo r otherwise uncompensated care. The percentage of cost borne by the counties\n in either cas e is established in the annual state appropriations laws normally enacted prior to\n the com mencement of the state fisca l year on July 1 of each year. These rates apply to the\n calendar year beginning in the middle of the state fiscal year.\n\n For the October to December 2008 quarter, the counties were responsible for 10 percent of the\n psychiatric hospital costs applicable to the uninsured patients that were resident in the\n respective counties for at least five years. For calendar year 2009 , the applicable percentage\n was 12.5 percent, but because this rate was established by state law enacted on or about July\n 1, 2008, it represents state law in place as of September 30, 2008, the measurement data for\n ARRA compliance. This application of the ARRA local jurisdiction requirement was confirmed by\n the clarification included in section 10201 (c)(6) of ACA, which expressly provided that ARRA\n compliance would be measured against state law (as well as the state plan) as of September\n 30, 2008. In State Medicaid Director Letter #1 0-023 (Nov. 9, 2010), CMS stated that it reads the\n ARRA language as meaning that if the State Plan or State law "as of September 30, 2008 ....\n provided for changes in the percentage contributions or dollar amount contributions, those\n\n\n 3\n In 2009, the reimbursement percentage was 87.5 %. In the October to December 2008 period, the percentage was\n 90%.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera/ Medica/ Assistance (A -02-11-01039) 35\n\x0c James P. Edert\n February 21 , 2014\n Page 6\n\n changes must be g iven effect as applicable to the current period." !d. at 2. The "State law"\n establishing the 12.5 percent contribution rate was clearly the law on its books as of September\n 30, 2008, and must be given effect in applying the local jurisdiction share provision of ARRA.\n\n The increase in the county percentage from 12.5 to 15 percent that took effect as of January 1,\n 2010, standing alone, might arguably be seen as inconsistent with the ARRA requirement.\n However, as explained above, the State was already fully compliant with the political subdi vision\n requirement for all county psychiatric facility payments because the State at all times covered\n far more than the full federal share of the certifying facilities \' costs.\n\n b) DSH Payments\n\n All of the state (and county) psychiatric hospitals\' expenditures for wh ich the counties had some\n responsibility were DSH payments.\' There is a limit in federal law on the amount of a state \'s\n annual DSH allotment that can be used for payments to psychiatric facilities (known as the IMD\n limit). In New Jersey, that limit for each of the ARRA years was $178,685 ,231 . The State \'s\n expenditures for psychiatric hospital reimbursement, as claimed on its CMS Form 64\n submissions, substantially exceeded the amounts that could be matched , and the State\n received FFP in DSH expenditures for the psychiatric facilities only up to its annual IMD DSH\n limit.\n\n Furthermore, the counties did not participate in all of the expenditures of the state psychiatric\n hospitals contained in the State\'s CMS 64-filings. The calculation of the amount billed to the\n counties in excess of the ARRA limit needs to take these two factor s into consideration.\n Appendix A shows the proper calculations for the state psychiatric facilities for ca lendar year\n 20 10 . The amount of the excess billing to the counties was S3, 144,979.5\n\n C. School-Based Health Services\n\n The State does not question the OIG\'s calcu lation that it would need to redistribute $13,916,801\n to the school districts in order to be in compliance wit h the local jurisdiction share requirement of\n ARRA. See draft audit report, App\'x G, Tbl. 6(c) . The State notes that it provides a very\n substantial amount of financia l support to the school d ist ricts outside the Medicaid program,\n which represents only a small fraction of the total State funding fo r the schools.\n\n II. Aggregate Method\n\n The aggregate method of compliance takes into account all annual program service and\n adm inistrative costs under the Medicaid program in effect as of September 30, 2008, and the\n political jurisdictions\' share of those costs. See SMDL 10-010. The method then considers\n\n\n 4\n There was a re latively small amo unt of services provided by the psychiatric hospitals to county residents that\n qua lifie d for regular Medicaid rei mbursement (e.g., patients over age 64). But the State did not require the cou nties\n to pay for any portion of the cost of serv ing th ese patients.\n\n \' In federal fisca l year 2009 the combi ned DSH claims for psychiatric hospita ls also exceeded by a substantial\n amo unt the !MD DSH limit applicable to that year. It is not necessary to calculate the effect of th is excess claim,\n because, as shown in the text, th e county share of payments in that year did not exceed t he permissible level.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A -02-11-01 039) 36\n\x0c James P. Edert\n February 21,2014\n Page 7\n\n comparable costs for the ARRA Period . If the local ju risd iction percentage of the total non\xc2\xad\n federal share of program expenditures is no greater than in the pre-ARRA period, the State is\n deemed to be in compliance with the local jurisdiction requirement.\n\n OIG concluded that in the aggregate, political subdivisions contributed 4.84 percent of the non\xc2\xad\n Federal share in the Base Period, and 6.35 percent of the same share during the ARRA Period,\n resulting in a difference of approximately $145.2 million.\n\n The State has identified a methodological error in the OIG\'s calculation of the percentage of the\n non-Federal share that New Jersey political divisions paid during both the Base and ARRA\n Periods. Once this error is corrected, the State can demonstrate that local jurisdictions\n contributed 7.8 and 8.87 percent during the Base and ARRA Periods, respectively, resulting in a\n discrepancy of just over $100 million. DHS has detailed its reasoning and calculations in\n Appendix B to this letter. However, the State does not rely upon the aggregate methodology\n for measuring its compliance. As shown below, the State would need to distribute no more than\n $17,061 ,780 million to local jurisdictions to be in compliance under the payment-specific\n method.\n\n III. \t Conc lusion\n\n For the reasons explained above , the State need only redistribute $13,916,801 to the school\n districts and $3,144,979 to the counties for excess amounts contributed by them fo r state\n psychiatric hospital expenditures in calendar year 2010 in order to be in full compliance with the\n local jurisdiction share requirement for the period covered by the OIG audit.\n\n Thank you for providing the State with an opportunity to comment on the draft aud it report.\n Should you have any questions, please contact me or Rich ard Hurd at (609) 588-2550 or by e\xc2\xad\n mail at Richard.H.Hurd@dhs.state.nj.us.\n\n\n Sincerely,\n\n\n\n\n Valerie Harr\n Director\n\n\n c: \t Jennifer Velez\n Richard Hurd\n\n Enclosures\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medica/Assistance (A -02-1 1-01039) 37\n\x0c APPENDIX A : Amounts Billed to Counties for State Psychiatric Hospital Services\n Compared to Permissible Amount in Calendar Year 2010\n\n Ca lendar year 2010 is the only year covered by the OIG draft audit for which there is a potential\n liability to the counties for excess billing of state psychiatric hospital expenditures. As explained\n above in Section I.B.2.a, the billing rate for ca lendar year 2009 was established in State law\n enacted prior to September 30, 2008, and therefore could be employed without incurri ng any\n ARRA liability.\n\n The calculation of the ca lendar year 2010 potential excess billing takes into account the\n following : (1) state psychiatric hospital claims were for DSH payments, for which the State is\n subject to the IMD-DSH limitation; (2) IMD-DSH claims in federal fiscal years (FFY) 2010 and\n 2011 exceeded the annual state IMD-DSH allotment; (3) counties participated in only a portion\n of all state psychiatric hospital expenditures .\n\n Table A-1 calculates the percentage of the total state psychiatric hospital expenditures in which\n the counties participate, wh ich was 63.54 percent in calendar year 2010. The data for total\n hospital expenditures (co lumn B) and for the amounts billed to the counties (column C) were\n taken from the State\'s CMS-64 forms.\n\n Table A-2 calculates the excess billing to counties during the last three quarters of FFY 2010.\n There was no excess billing in the first quarter (October to December 2009) because the billing\n rate to the counties in that quarter was established in state law prior to September 30, 2008.\n The calculation subtracts the county psychiatric hospital claims and the first quarter state\n psychi atric hospital cla ims from the IMD-DSH limit for the year. The balance is the amount of\n FFP paid with respect to state psychiatric hospital claims in the last three quarters of FFY 2010.\n The percentage of those claims in which the counties participated was derived from Table A-1.\n The counties were billed 15 percent of total expenditures (which is shown by doubling the non\xc2\xad\n Federal Share and multiplying the result by 0.15). The previous billing rate was 12.5 percent, so\n that the excess portion is one-sixth of the amount billed (2 .5/15) .\n\n Table A-3 provides a similar calculation designed to determine the excess billing amount for the\n October to December 2010 quarter, which was the first quarter of FFY 2011 . The calculation is\n done for three quarters, and the result divided by three to obtain the excess billing amount for\n the October to December quarter.\n\n\n\n\n A-I\n\n\n\n\nNew J ersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera!Medica!A ssistance (A-02-11-01039) 38\n\x0c Table A-1 : County Percenta e Share of State Psychiatric Hos13ital Expend itures6\n A B c D E\n County\n Total\n Participation\n Expenditures\n as\n Total County in Which\n Period Percentage\n Expenditures Payments County\n of Total\n Participated\n Expenditures\n (C /15%)\n (D I B)\n Jan-Mar\n $114,465, 170 $10,909,310 $72,728,733 63.54%\n 2010\n Apr-Jun\n 114,465,170 $10,909,310 72,728,733 63.54%\n 2010\n Jui-Sept\n 114,465,170 $10,909,310 72,728,733 63.54%\n 2010\n Oct-Dec\n 2010\n 114,465,170 I\n $1o.9o9,31 o 72,728,733 63. 54%\n Total $457,860,680 $43,637,240 $290,914,933 63.54%\n\n\n\n Table A-2\xc2\xb7 Excess Amount Billed to Counties in Last Three Quarters of FFY 20107\n F G H I J K L\n Federal\n Federal Share of County\n Share of State Participation Portion of\n Excess\n County Psychiatric Remaining Percentage Total\n Annual State Amount\n Psychiatric Hospital IMD-DSH of Expenditures\n IMD DSH Billed to\n Hospital IMD DSH Availibility 1 Remaining Billed to\n Allotment Counties\n IMD DSH Claims (F - G- H) IMD-DSH Counties\n (K /6)\n Claims Paid in Availability (Jx2x15%)\n Paid First (Ex I)\n Quarter\n $178,685,231 $65,053,020 $42 476,1 08 $70,156, 103 $45,211,074 $13,563,322 $2,260,554\n\n\n\n\n 6\n The quarterly expenditures in Columns Band C were calculated by taking a quarter of the total annual expenditures\n reported on the State\'s CMS-64 forms.\n 7\n Columns G and H include all claims applied against the FFY 2010 !MD allotment, including subsequent adjustments.\n A-2\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal M edical Assistance (A -02-11 -01 039) 39\n\x0c Table A-3\xc2\xb7 Excess Amount Billed to Counties in First Quarter of FFY 2011 8\n M N 0 p Q R s\n County\n Federal\n Participation\n Share of Portion of Excess\n Remaining Percentage Excess\n State IMD County Total Amount\n IMD-DSH of Amount\n DSH Psychiatric Expenditures Billed to\n Availibility Remaining Billed to\n Allotment Hospital Billed to Counties\n in First IMD-DSH Counties\n for First IMD DSH Counties in in First\n Three Availability in First\n Three Claims First Three Three\n Quarters in First Quarter\n Quarters Paid in Quarters Quarters\n (M -N) Three (R/3)\n First Three (Px2x15%) (Q/6)\n Quarters\n Quarters\n (EX 0 )\n $134,013,920 $49,131 015 $84,882,905 $53 932 792 $16,179,837 $2,696 640 $898,880\n\n Total Excess Amount Billed to Counties in Calendar Year 2010 (L + S): $3,1 44,979\n\n\n\n\n 8\n Col umns Nand 0 include all claims applied against the FFY 20 11 IMD allotment, including subsequent adjustments.\n\n A-3\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera!Medica!Assistance (A -02-11-01 039) 40\n\x0c APPENDIX 8: Aggregate Approach\n\n In calculating its compliance with the ARRA requ irements for enhanced temporary FMAP during\n the ARRA Period , the State assumes arguendo that the underlying data OIG used to perform its\n calculations, as detailed in Appendix F of the draft aud it report , are correct. Nonetheless, the\n State has determined that OIG\'s calculation of New Jersey politica l subdivisions\' percentage\n co ntribution of the non-Federal share using the aggregate method contains a methodological\n error: OIG did not accou nt for the fact that co unty nu rsing facilities and county-operated\n psych iatric facilities are paid on a CPE basis.\n\n In its ARRA Frequently Asked Questions guidance document, CMS clarified that "[u]nder a CPE\n financing mechanism[,] the applicable (county] percentage of the non-Federal share for [ARRA\n Federal] claiming purposes is no less th an 100 percent (but could be more if the State does not\n share with the subdivision the Federal payment)." CMS ARRA FAQs, at 14 (emphasis added).\n Under CMS \'s interpretation, when services are paid by CPEs, the county percentage does not\n decrease below 100 percent even if the State uses state funds to reim burse a portion of the\n expenditures. This follows from the fact that the CPE , rather than a paym ent from the State\n Medicaid agency, is the event that triggers the federal matching payment.\n\n In New Jersey, county nursing facilities and psychiatric facilities operated by counties are paid\n on a CPE basis . Yet , Appendix F of the Draft Report calculates the political subdivisions\'\n contribution to the non-Federal share during both the Base and ARRA Periods to be\n considerably less than the non-Federal share, in ot her words, well short of 100 percent.\n App lying CMS \'s guidance on the CPE method , the State has adjusted the aggregate method\n calculation to make the county percentage of the non-Federal share for ARRA Federal claiming\n purposes 100 percent in both the Base and ARRA Periods.\n\n The chart below corrects the error and demonstrates that the amount to be redistributed to\n political subdivi sion s under the aggregate method wo uld be only $102.3 million , not the $145.2\n million calculated by OIG.\n\n\n\n\n B-1\n\n\n\n\nNew J ersey Did Not Comply With R ecovery Act Requirements f or Receiving Increased\nFedera!Medica!A ssistance (A -02-11-01039) 41\n\x0c Table B-1: State Compliance with Political Subdivision Requirement Under Aggregate Approach\n\n A B c D E F G H\n Subdivision Subdil\n Contribution Contri\n Subdivision\n Subdivision Perce ntage Percer\n Total Non-Federal Contribution\n Type of Service Federal Share Contribution to Non- to\n Expenditures Share (OIG\n (Modified) Federal Feder<\n Calculation)\n Share (OIG Share\n Calculation) (Modif\n Base Period (10/1/2007-9/30/2008)\n County Nursing Facilities $358,180,482 $179,090,241 $179,090,241 $94,787,436 $179,090,241 52.93% 100.00\n State Agency-Operated\n 458,827,002 229,41 3,501 229,413,501 15,011,946 15,011,946 6.54% 6.54%\n Psychiatric Facilities\n County-Operated Psychiatric\n 138,350,614 69,175,307 69, 175,307 5,787,342 69, 175,307 8.37% 100.00\n Facilities\n School Based Health Services\n 89,656,852 44,828,426 44,828,426 73,966,903 73,966,903 165.00% 165.00\n Costs\n Administrative Costs 163,157,686 84,835,066 78,322,620 51,723,908 51 ,723,908 66.04% 66.04\xc2\xb0/\n Subtotal 1,208, 172,636 607 ,342,541 600,830,095 241 ,277,535 603 369,860 40.16% 64.74\xc2\xb0/\n Subtotal - Other\n 8 ,851 ,064,050 4,466, 748,508 4 ,384,315,542 0 0\n Expenditures\n Aggregate Total for Base\n Period -\xc2\xad All Medicaid $ 10,059,236,686 $5,074,091,049 $4,985,145,637 $241 ,277,535 $603,369,860 4.84% 7.80%\n Services\n\n\n\n ARRA Period (1 0/1/2008-12/31/201 0)\n County Nursing Facilities $795,761 095 $485,076 117 J $310,684,978 $184 993,887 $310,684,978 59.54% 100.00\n State-Agency-Operated\n 720,608,743 360,304,372 1360,304,371 30,872,559 30,872,559 8.57% 8.57%\n Psychiatric Facilities\n County-Operated Psychiatric\n 260,688,980 130,344,490 130,344,490 13,693,054 130,344,490 10.51% 100.00\n Facilities\n School Based Health Services\n 351 ,937,576 215,731,078 136,206,498 290,348,500 290,348,500 213.17% 213.17\n Costs\n Administrative Costs 329,840,281 172,885,475 156,954,806 91 ,267,502 91,267,502 58. 15% 58 . 15~\n\n B-2 \n\n\n\n\n\nNew Jersey Did Not Comply With R ecovery Act Requirements for R eceiving Increased\nFederal MedicalAssistance (A -02-11-01039) 42\n\x0c Subtotal 2,458,836 675 1,364,341 ,532 1,094,495,144 611 \'175,502 1,182,949,842 55.84% 108.08\n Subtotal-Other Expenditures 21,212,255,918 12,679,394,110 8,532,861 ,807 0 0\n Aggregate Total for Base\n $23,671 ,092,593 $14,043,735,642 $9,627,356,951 $611 ,175,502 $1 \'182,939,842 6.35% 8.87%\n Period-All Medicaid Services\n\n\n\n\n B-3\n\n\n\n\nNew Jersey Did Not Comply With R ecovery Act Requirements for Receiving Increased\nFederalMedicalAssistance (A -02-11-01039) 43\n\x0c APPENDIX 1: STATE AGENCY COMMENTS DATED MARCH 31, 2014 \n\n\n\n\n\n ~brle of ~efu W.eney\n CHRIS CHRISTIE DEPARTMENT OF HUMAN SERVICES\n Governor DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES\n\n KIM GUADAGNO PO Box 712\n J ENNIFER VELEZ\n Lt. Governor TRENTON, NJ 08625-0712\n Commissioner\n March 31 , 2014 VALERIE HARR\n Director\n\n\n James P. Edert\n Regional Inspector General for Audit Services\n Department of Health and Human Services\n Office of Inspector General\n Office of Audit Services, Region II\n Jacob K. Javits Federal Building\n 26 Federal Plaza, Room 3900\n New York, NY 10278\n\n Re: \t Supplement to New Jersey Response-Draft Audit Report on Political\n Subdivision Requirement Under the Recovery Act, A-02-11-01 039\n\n Dear Mr. Edert:\n\n I am writing to supplement the above-captioned response to your Draft Audit Report A-02-11\xc2\xad\n 01 039, entitled New Jersey Did Not Comply with Recovery Act Requirements for Receiving\n Increased Federal Medical Assistance, which was sent to us under cover of your letter dated\n December 17, 2013.\n\n The Draft Report included recommendations that the State, in order to be in compliance with the\n Recovery Act, redistribute $32,761 ,148 to county nursing homes and $2,895,831 to county\n psychiatric facilities. The State\'s response disputed these recommendations. Based on its\n understanding of the Centers for Medicare and Medicaid Services\'s (CMS) policies concerning\n compliance in the Certified Public Expenditure (CPE) context, the State believes that it was in\n full compliance with respect to both county nursing homes and county psychiatric facilities . See\n Response of Feb. 21 , 2014, at 2-3.\n\n We have now received confirmation from CMS that our understanding is correct. I am enclosing\n a letter from Kristin Fan, Deputy Director of the Financial Management Group within the Center\n for Medicaid and CHIP Services, dated March 20, 2014. Ms. Fan\'s letter was in response to my\n letter to her dated March 10, 2014, seeking confirmation of our understanding of the CMS\n policies in the CPE context. Ms. Fan reviewed the CPE information relating to county nursing\n facilities and county psychiatric facilities, and agreed with our conclusion that "New Jersey was\n in compliance with the political subdivision requ irements as established under section\n 5001 (g)(2) of ARRA. "\n\n I am enclosing copies of my March 10, 2014 letter to Ms. Fan and her March 20, 2014 letter to\n me. Based on this correspondence, which confirms the position set forth in our response of\n February 21 , 2014, I request that your office withdraw its recommendation that the State\n redistribute funds to county nursing homes and county psychiatric facilities.\n\n\n\n\n New J,.rsey Is An Equal Opportunity Employer \xe2\x80\xa2 Printed 0 11 R16cycled Paper alld Recyc/ohk\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera!Medica! Assistance (A-02-11 -01039) 44\n\x0c James P. Edert\n March 31, 2014\n Page 2\n\n\n Should you have any questions, please contact me or Richard Hurd at 609-588-2550 or by e\xc2\xad\n mail at Richard.H.H urd@dhs.state.nj.us.\n\n Sincerely,\n\n\n v~~\n Va lerie Harr\n Director\n\n VH:H\n Enclosures\n c. C. Bailey\n R. Hurd\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirementsfor Receiving Increased\nFederal Medical Assistance (A -02-11-01 039) 45\n\x0c State of New Jersey\n DEPARTMENT OF H UMAN SJJ RVICIJS\n D IVISION OF MEDICAl, A SSII.\'TANCIJ AND H UALTH S ERVICl!S\n CHRIS CHRI~\'TIE 1\'.0. Box 712 JBNNIFER V BLIJZ\n Governor Trento n, NJ 0862~ -07 12 Commissioner\n\n K IM G UADAGNO VAt..nRII! HARR\n Lt. Governor Director\n\n\n March 10, 2014\n\n\n\n Ms. Kristin Fan\n Deputy Director, Financial Management Group\n Center for Medicaid and CHIP Services\n Centers for Medicare & Medicaid Services\n 7500 Security Boulevard\n Baltimore, Maryland 21244-1850\n\n Dear Ms. Fan:\n\n This is to request confirmation from the Centers for Medicare and Medicaid Services (CMS) of\n the Interpretation of the State of New Jersey of the local jurisdiction share requirement of the\n American Recovery and Reinvestment Act (ARRA) in the circumstances described below. The\n Issue arises in connecti on with an audit by the Office of Inspector General (OIG) of the Stale\'s\n compliance with the ARRA requirement during the period October 2008 through December\n 2010.\n I\n New Jersey\'s Medicaid program covers services in county-owned nursing homes and county\n psychiatric facilities. As public entities , these facilities certify their costs to the Department of\n Human Services, Division of Medical Assistance and Health Services, and the cert ified\n expend iture s are the basis for the claims for federal reimbursement for these services . Prior to\n ARRA the matching rate fo r the services was 50 percent. During the ARRA period the matching\n for the nursing facilit ies rose as high as 61 .59 percent. The certified expenditures for the\n psychiatric facil ities were cla imed as DSH payments, for which the FMAP rate was 50 percent\n throug hout the ARRA period.\n\n The long standing practice in New Jersey has been for the State to reimburse most of the\n counties\' costs of operating their nursing homes and psychiatric facilities. In the case of the\n nursing homes the reimbursement is pursuant to a statutory form ula under which the\n percentag.e of costs reimbursed varies by county but in tota l is substantially greater than the\n federa l share of the costs. In the case of the psychiatric facilities, t he state reimburses the\n counties a set percentage of costs fo r those patients (other t han Medicaid eligibles) who have\n been residents of the county for at\xc2\xb7 least five years, and 100 percent for all other patients\n (including Medicaid eligible patients). In calendar year 2008 the reimbursement percentage,\n established in the state\'s app ropriation law, was 90 percent. In ca lendar year 2009 (established\n in an appropriation law enacted well before the beginning of federal fiscal year 2009) the rate\n was 87.5 percent. In calendar year 2010 the rate was 85 percent.\n\n\n\n\n New Jcruy Is An Equal Opporhmlty Employer\n\n\n\n\nNew Jersey Did Not Comply With Recovery A ct R equirements f or Receiving Increased\nF edera!Medica! Assistance (A -02-1 1-01039) 46\n\x0c The following charts show (in the aggregate), for the ARRA base period and for the ARRA\n period October 2008 through December 2010, the total amounts certified, the federa l and non\xc2\xad\n federal shares, the amounts reimbursed to the counties, the federal share percentage of the\n certified costs and the percentage of certified costs reimbursed to the counties by the State.\n\n County Nursing Facilities\n\n Total Federal Non-Federal Amount Percent\n Certified Share Share Reimbursed ReimQursed\n Expenses to Counties to Counties\n\n Base Period $358,180,482 $179,090,241 $179,090,241 $263,393,046 50.00% 73.53%\n 10/07-9/08\n\n ARRA Period $795,761,095 $485,076,117 $310,684,978 $610,767,207 up to 61.59% 76.75%\n 10/08-12/1 0\n\n County Psychiatric Facilities\n\n Total Federal Non-Federal Amount Percent\n Certified Share Share Reimbursed Reimbursed\n Expenses to Counties to Counties\n\n Base Period $138,350,614 $69,175,307 $69,175,307 $132,563,272 50.00% 95.81%\n 10/07-9/08\n\n ARRA Period $260,688,980 $130,344,490 $130,344,490$246,995,926 50.00% 94.74%\n 10/08-12/10\n\n As can be seen, throughout the ARRA period the counties were reimbursed for far more than\n the federal share of their certified expenditures for both the county nursing facilities and the\n county psychiatric facilities.1\n\n On July 7 , 2009, Cindy Mann, Director, Center for Medicaid and State Operations, issued a\n letter to State Health Officials attaching answers to Frequently Asked Questions that were\n intended as guidance in the implementation of ARRA. The answer to question 34a (page 14,\n attached) addressed the treatment of Certified Public Expenditure (CPE) financing mechanisms,\n and explained that the applicable percentage of the non-federal share for claiming purposes is\n no less than 100 percent (but could be more if the State does not share the federal payment\n with the local jurisdiction). To be compliant with the local jurisdiction share of ARRA, the\n guidance stated that, even if a state were to switch to an Intergovernmental Transfer method, it\n could not ask a local jurisdiction to contribute more of the\xc2\xb7 non-federal share t han it would have\n through a CPE methodology. Since the local jurisdiction share in a \xc2\xb7CPE system is never less\n than 100 percent, the state would be in compliance so long as it did not require the local\n jurisdiction to bear more than 100 percent of the non -federal share during the ARRA period.\n\n In New Jersey during the ARRA period, the counties did not bear more than 100 percent of the\n non-federal share of the amounts certified. To the contrary, as the tables show, the counties\n\n 1\n During the ARRA. period the State\'s reimbursement of county nursing homes exceeded the\n federal share in the aggregate by over $125 million . Its reimbursement of county psychiatric\n facilities exceeded the federal share in the aggregate by over $116 million .\n\n\n\n\nNew Jersey Did Not Comply With R ecovery Act R equirements for Receiving Increased\nFederalMedicalAssistance (A-02-11-01039)\n 47\n\x0c actually bore substantially less than the non-federal share. This means that the State passed\n through in full (and more) the enhanced FMAP (in the case of nursing facilities), and much more\n than the federal share in the case of psychiatric facilities.\n\n We request that CMS confirm our understanding that a state that passes through to a local\n jurisdiction at least the full amount of the federal share of certified expenditures during the\n ARRA period is compliant with the local jurisdiction share requirement of ARRA. It is our\n intention to provide the CMS confirmation to the OIG, in order to resolve the portion of its\n current audit that relates to certified expenditures of county nursing homes and psychiatric\n facilities in New Jersey.\n\n Thank you very much for your consideration of this req uest.\n\n Sincerely,\n\n\n\n Valerie Harr\n Director\n\n\n Enclosure\n c: \t Christopher Bailey\n Richa rd Hurd\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederal Medical Assistance (A -02-I 1-01 039) 48\n\x0c DEPARTMENT OF HEALTH ,<,z HUMAN SERVICES\n Centers foJ\' Medicare & Medicaid Services\n 7500 Security Boulevard, Mail Stop S2-26-12\n Baltimo re, Marylond 21211-1850 CLNTF/11 for M/!0/CAIIEII M\xc2\xa30/CA/DSfRVICFS\n\n\n Center for Medicaid and Sl:ctte Operations\n\n\n\n American Recovery and Reinvestment Act of 2009 \n\n Ft\xc2\xb7equently Asked Questions from States \n\n July 7, 2009 \n\n Division D, TiUe I, Section 1001 - Maldng Work Jlay Credit\n\n Question 1: Unlike last year\'s stimulus payment and regular tax refunds, the Making Work Pay\n credit is not being sent as a separate check, or just included in a tax refund. Peo ple who are\n working w ill start getting it in their paychecks as early as April. The tax withhe ld from the ir\n gross pay will go down, resulting in them receiving more Lake home pay. However, Lhe ARRA\n says that this amount of credit is not counted as income for determ ining eligibility for federally\n funded programs. We are not sure what we arc suppust:d to do. Are we supposed to reduce the\n amount of the person\'s gross earned income by the amount of this cred it that they will be\n receiving in each check? Or do we continue to count the person\'s gross income? Has CMS\n d iscussed any method of identifying what the amount would be that we wou ld not count or how\n we would figure that o ut?\n\n Ans we r: Section I 00 I of the Recovery Act adds a new section to the Internal Revenue Code.\n Under this new section, a credit against taxes paid is provided to indiv iduals who meet that\n section\'s requirements. According to the Internal Revenue Service\'s Web site\n (http://www. i u~. gov/newsroom/artic l e/O ..id=-<204447,00.html) for people who receive a paycheck\n and are subject to withholding, the credit wi ll be handled by their employers through automated\n withholding changes in early spring.\n\n The change in w ithho lding is likely to produce inore take home pay for those receiving credit\n through their paychecks. For others , the credit can be claimed on their 2009 and 2010 tax\n returns. The credit is the lower of6.2 percent of the person\'s earned income, or $400 ($800 fora\n joint return).\n\n T o determine the dollar amount of the credit, multiply the individual\'s earned income (as defined\n for tax purposes) by 6.2 percent. T he result is the dollar amount that should be d isregarded. No\n more than $400 for an individ ual, or $800 for a couple filing a joint return, should be disregarded\n in any one year.\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederalMedicalAssistance (A-02-11-01039)\n 49\n\x0c Page l 3 - F rcquenfly Asked Questions, 717/09\n\n\n such as education, or to maintain aspects of their Medicaid program that may have been\n previously cut due to budgetary constraints. The important factor is that the Slates spend the\n entirety of their increased FMAP funds and report on specitic uses of these funds to CMS on an\n ongoing basis. Instruct ions for reporting on the use of these fu nds will be issued to Slates\n shortly.\n\n\n Local G overnment Share in the State\'s M e dica id M atch\n\n\n Quest ion 32: ARRA makes States ineligible for increased FMAP if they increase the local\n government\'s share of the State Med icaid match to a percentage greater than was in place under\n the State plan on September 30, 2008. Our State policy makers have posed the fo llowing\n scenario (the numbers in the example are made up for simpl icity) and asked if it would constitute\n a violation of the proposed restriction language:\n\n Under current law, a fo rmula is used to calc ulate the amount of funding counties are\n required to pay fo r a certain program with the State\'s generally paying about 50% of the\n growth and the counties paying about 50% of the growth. If that formu la is changed,\n requiring the counties to pay I 00% of the growth in FY 2010, however, the overall\n county percentage is still below what they contributed in FY 2008 (due to higher growth\n in the overall State match), would that make the State ineligible for the increased FMAP?\n\n\n Wil l CMS score this restriction based entirely on the percentages paid at the end of the recession\n period, or will a change to the methodology used to calcu late county contribution (resu lting in a\n greater contribution) be considered a violation?\n\n Answe r : Under section 5001(g)(2), during the recession adjustment period (October 1, 2008 \xc2\xad\n December 31, 20 10), States may not require the percentage of a State\'s non-Federal share of\n expenditures contributed by political subdivisions w ithin a State to be greater than the percentage\n required under the State\'s p lan on September 30, 2008. This test is app lied on a percentage basis\n and not on a do llar basis. For exam ple, if on Septe mber 30, 2008, a State req uired its political\n subd ivision to contribute 10 percent of the non-Federal share of its Medicaid expenditures, then,\n during the recession adjustment period, the political subdivisions must cont inu e to contribute no\n more than 10 percent of the non-Federal share in order for the State to continue to be in\n compliance with the ARRA requirements.\n\n\n Question 33: Our State\'s legislature has cut fund ing fo r Graduate Med ical Education and other\n Medicaid programs. T he counties have ap proached the State with the possibility of vo luntarily\n providing the non-Federal share for some of these expenditures that have been cut by the State\n legislature. Section 500 I(g)(2) of ARRA prohibits States from requiring political subdivisions\n to contri bute a greater percentage toward the non-Federal share of expenditures than otherwise\n would have been required on September 30, 2008. If this is done on a voluntary basis and at the\n request of the State\'s political subdivisions, would that violate provisio ns on main tain ing the\n ratio of local s hare?\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFederalMedicalAssistance (A -02-11-01039)\n 50\n\x0c Page 14- Frequently Asked Questions, 7/7/09\n\n\n A nswer: As noted above, if the percentage of the political s ubdivisions\' non-Federal share\n increases during the recession period, even on a "voluntary" basis, the State would be in\n violation of the ARRA requ irement.\n\n\n Question 34a : There are some facilities that have been and currently are using Certified Publ ic\n Expenditures (CPEs) as the funding mechanism. These facilities include a local public hospital\n and th e State\'s university hospital. Another group includes the State-owned Institutes for Mental\n Disease (JMD). The State has been exploring the possibility of converting to the usc of\n Intergovernmental Transfers (JOTs) as the funding mechanism instead of CPEs. The question is,\n would converting from CPE to IOT be considered a violation of attestation #3, in which tho State\n attests that they do not require polit ical subdivisions to contribute a greater percentage of the\n non-Pederal share of expenditures beginn ing October I, 2008?\n\n Answer: Not necessarily. Under a CPE financing mechanism the appli cable percentage of the\n non-Federal share for claiming purposes is no less than 100 percent (but could be more if the\n State does not share with the subdivision the Federal payment). Dy moving to an IOT financing\n mechan ism, the non-Federal share contribution could not be any more than 100 percent of th e\n non-Federal share, or such higher level as is represented by the CPEs. That is, under a CPE\n funding mechanism, the political subdivision is contributing at least 100 percent of the non\xc2\xad\n Federal s hare of its expenditures. Therefore, if a State moved to an JOT funding mechanism\n during the recession adj ustment period the pol itical subdivision making the lOT could not\n contribute more than the percentage of the non-Federal sh 1:1n~ that it would have th rough CPEs.\n Jn doing so, the State must credit the political sulxlivision with the reduction in the non-Federal\n share resulting from the increased FMAP under ARRA.\n\n\n Q uestion 34b: How are transfers from departments within a State treated for purposes of this\n provision? If the State\'s Department of Mental Health normally transfers funds it was\n a ppropriated from the State to the Medicaid Department for Medicaid payments, do these\n transfers have to be in the same percentage o r can they remain at the same dollar amount?\n\n Answct\xc2\xb7: These are considered transfers between Departments within the State itself and no t\n contri butions o r transfers from political subdivisions. Therefore, such transfers between\n Departments within the State government are not bound hy the requirements at section\n 500l(g)(2) of ARRA.\n\n\n Question 34c: Is section 500l (g)(2) applicable to the following: lOTs, CPEs, and health care\n related taxes?\n\n Answer: I.GTs from a political subdivision to the State would have to comply with this\n provision. T herefore, the amount of the IGTs from a political subdivision may not increase on a\n percentage basis from what was transferred as ofSeptember 30, 2008. States should carefully\n review requirements with their political subdivisions to ensure that any agreements where\n specific do llar amounts are transferred are adjusted so that the overall percentage of the non\xc2\xad\n Federal share contribution is not increased due to the increase in the FMAP rate and the\n reduction in the non-Federal share.\n\n\n\n\nNew Jersey Did Not Comply With R ecovery Act R equirements for Receiving Increased\nFederalMedicalAssistance (A-02-11-01039)\n 51\n\x0c Page 15 - f7requently Asked Questions, 717/09\n\n\n Under a CPE financing mechanism the applicable percemnge of the non-Federal share for\n claiming purposes is no less than I 00 percent (but couldbe more ifthe State does not share with\n the subdivision the Federal payment). The State should ensure thut, liS the Federal share\n increases, the reduction in the non-Federal share is credited proportionately 1.o the contributing\n public agency certifying public expenditures.\n\n We do not believe that health care-related taxe s are impacted by this provision. Health care\xc2\xad\n re lated taxes are not requirements imposed upon pol itical subdivisions fo r purposes of fin ancing\n the non-Federa l share of Medicaid payments. The health care-related tax is assessed against\n health care providers fo r the provisio n of certaiu health care items or services. In order to be\n considered a permissi ble sot.n\xc2\xb7cc of non-Federal share financing, a hcalthcare-related tax must\n meet other statutory requirements at section 1903(w) of the Act.\n\n\n Question 34d: What is the definition of a "political subdivision" and what relationship does this\n have to any of the regulations CMS published regarding the definition of a unit of government?\n\n Answer: States have considerable discretion to create and define "political subd ivisions" but\n must apply the same definitions under Medicaid as they do for other purposes under State law.\n There are no CMS regulations in effect at this t ime that would establish another definition of\n politica l subdivis ion so we would accept the State\' s designation of its political subdivisions.\n\n\n Question 34c: What if a State has a program established where local governments pay a\n fi xed percentage of a total allotted amount (e.g., the State\'s DSH allotment or available\n room under their UPL)? Is it CMS\' interpretation of this section that the State cannot requi re\n the political subdi visio n of the State, to co ntinue to pay a fix ed percentage of the total amount for\n the State to be el igible for increased FMA P funds under ARRA? To be eligible for increased\n FMAP funds is the State required to revise this agreement to provide that during the recession\n adjustment period the political subdivision must pay the regular State Medical Assistance\n Percentage (S-MAP)? To be eligible for increased FMAP funds, is the State requ ired to revise\n this agreement to provide that, during the recession adjustment period, the political subdivision\n must pay some other percentage of the total amount? If so, what percentage must it pay?\n\n A nswer: The State must evaluate the percentage of the non-Federal share the political\n subdivision was previously providi ng (as ofSeptember 30, 2008). The State must then\n determine if th is percentage hus effecti vely increased w ith any ofthc changes authorized under\n ARRA. The State must ens ure that the percentage of.the non-Federal share co ntri bution from the\n po litical subd ivision is no more than what it was required to contribute as of September 30,2008.\n If, as a result of the ARRA changes, the political subdivision\'s percentage contribution ofthe\n non-Federal share has inc reased then the State wou ld be in violation of AR.RA.\n\n\n Drawing Down Funds and Reporting\n\n\n Question 35: When CMS says "able to access" does that mean States are being sent money for\n two quarters based o n estimated need and then a reconciliation w ill occur, or are the funds goi ng\n\n\n\n\nNew Jersey Did Not Comply With R ecovery A ct Requirements for R eceiving Increased\nFedera!Medica!Assistance (A -02-1 1-01039) 52\n\x0c DEPARTMENT O F HEALTH & HUMAN SERVICF5\n Centers for Medicare & Medicaid Services\n 7500 Security Boulevard , Mail Stop 52-26-12\n Baltimore, Maryland 21244-1 850\n\n\n\n\n Valerie Harr\n Director\n Division ofMedical Assistance and Health Services\n Department ofHuman Services\n P.O. Box 712\n Trenton, New Jersey 08625-0712\n\n Dear Ms. Harr:\n\n Thank you for your letter regarding New Jersey\'s use of certified public expenditures (CPEs)\n within its Medicaid program and their interaction with the local jurisdiction share requirement of\n the American Recove ry and Reinvestment Act (ARRA).\n\n As you mentioned, section 5001(g)(2) ofARRA stipulated that states may not, during the\n recovery period (October I, 2008-December 31, 201 0), require the percentage of a state\'s non\xc2\xad\n federal share of Medicaid expenditures contributed by political subdivisions within a state to be\n greater than th e percentage required under the state\'s plan on September 30, 2008. In addition to\n a letter to all states on how to implement this provision, the Centers for Medicare & Medicaid\n Services (CMS) also issued additional guidance on July 7, 2009 in the form ofa question and\n answer document. In that document, CMS reiterated that compliance with thi s requirement was\n to be applied on a percentage basis. \xc2\xb7\n\n CMS also clarified that fo r purposes of a CPE, the applicable percentage of the non-federal share\n for claiming purposes is never less than 100 percent of the non-federal share. In your letter, you\n provided information regarding application of CPEs with yo ur county nursing fac ilities as well\n as your county psychiatric facilities. ln both of these instances, New Jersey has documented that\n the counties were not required to contribute more than 100 percent ofthe non-federal share ofth e\n total payments.\n\n Therefore, CMS would agree tha t New Jersey was in compliance with the political subdivision\n requirements as established under section 5001(g)(2) ofARRA. I hope this information is\n helpful and let me know if you have any additional questions.\n\n Sincerely,\n\n ~~~\n Kristin Fan\n Deputy Director\n\n\n\n\nNew Jersey Did Not Comply With Recovery Act Requirements for Receiving Increased\nFedera/Medica/Assistance (A -02-1 1-01039) 53\n\x0c'