Review of Alabama's Medicaid Upper-Payment-Limit Calculations for Hospitals and Nursing Facilities,

Our objectives were to determine whether Alabama (1) calculated the upper payment limit (UPL) for State and non-State government hospitals and for non-State government nursing facilities in accordance with Federal regulations and the approved State plan amendments and (2) properly included UPL payments in the calculation of hospital-specific disproportionate share hospital (DSH) limits.  We found that for State fiscal year (FY) 2003, Alabama generally calculated the State and non-State government hospital outpatient UPLs in compliance with Federal regulations and its State plan amendment.  However, Alabama did not comply with its State plan amendment when calculating the State and non-State government hospital inpatient UPLs, nor did it comply with the revised Federal regulations when calculating the non-State government nursing facility UPL.  Also, Alabama did not include all hospital UPL payments in its calculation of hospital-specific DSH limits.  The actual DSH limits and associated overpayments cannot be computed until the UPL findings in this report are resolved.  Thus, we are leaving this matter to the State and CMS for resolution. 

We recommended that Alabama (1) refund to the Federal Government $25,746,634 in UPL overpayments to State and non-State government facilities, (2) comply with the approved State plan when calculating hospital inpatient UPLs for State and non-State government facilities for periods subsequent to our audit period, (3) remove the State facility from the non-State government nursing facility UPL calculation for periods subsequent to our audit period, (4) work with CMS to resolve potential DSH overpayments currently valued at $47,685,747, and (5) include all UPL payments when calculating hospital-specific DSH limits for periods subsequent to our audit period.  

With respect to our second recommendation, Alabama said that it did comply with its State plan amendment in the UPL calculations for inpatient hospital services and that CMS had determined that Alabama's UPL calculations were in compliance with the State plan.  With respect to our fourth recommendation on resolving potential DSH overpayments, the State replied that it had properly calculated the cost of uncompensated care and was working with CMS on this issue.  The State's response did not warrant any revisions to the results of our review or to our recommendations.