Hatch and Grassley Press CMS to Clarify Guidance for State Based Marketplaces

Recent OIG Report Warns Taxpayer Money at Risk for Abuse

WASHINGTON – Senate Finance Committee Chairman Orrin Hatch (R-Utah) and Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) sent a letter to Centers for Medicare & Medicaid Services (CMS) Acting Administrator Andrew Slavitt pressing the agency to further clarify guidance for how federal funds may be used to implement the Patient Protection and Affordable Care Act (PPACA) within state based marketplaces (SBMs). A recent OIG report found that SBMs might have used, and may continue to be using, federal establishment grant funds for operating expenses, contrary to the law.

“SBMs cannot be allowed to use hard-earned taxpayer dollars for expenses that are statutorily prohibited. Moreover, given the operational challenges of SBMs nationwide, the use of grant funds to support operations is not only a prohibited use of such funds but a short term fix that delays the time before structural defects have to be addressed,” the Chairmen wrote.

The full text of the letter is below and a signed copy is available here.

May 4, 2015

VIA ELECTRONIC TRANSMISSION

The Honorable Andrew M. Slavitt

Acting Administrator

Centers for Medicare & Medicaid Services

200 Independence Ave, S.W.

Washington, D.C. 20201

Dear Mr. Slavitt,

We noted with interest the Early Alert (alert) issued to the Centers for Medicare & Medicaid Services (CMS) on April 29 by the Health and Human Services Office of Inspector General (OIG) titled, “Without Clearer Guidance, Marketplaces Might Use Federal Funding Assistance for Operational Costs When Prohibited by Law.” In the alert, OIG notes that without clearer guidance from CMS as to what actions fall within prohibited uses, taxpayer monies could be – and may have already been – used for improper operational costs within State based marketplaces (SBMs). The concerns raised by OIG are very similar to ones we raised to your predecessor regarding CMS’ oversight of the state–based exchanges and how CMS is ensuring taxpayer dollars are appropriately used and expended.

To help implement the ACA, CMS provided guidance clarifying that federal funds may not be used to cover maintenance and operating costs, which include rent, software maintenance, telecommunications, utilities, and base operational personnel and contractors. However, OIG notes that the guidance should be more specific regarding other key prohibitions, such as call centers and in-person assisters. OIG stated, “Without specific guidance that clearly defines the difference between a design, development, and implementation expense (potentially allowable) and an operating expense (statutorily prohibited), there is a risk that SBMs might inappropriately use establishment grant funds for operational costs.”

These concerns are not hypothetical. For example, OIG cites Washington State’s budget documents which allude to the use of $10 million in establishment grant funds to support operating expenses. Further, OIG notes that SBMs face uncertain operating revenues in 2015 and beyond. The lack of revenues is quite disconcerting in light of the fact billions of dollars of taxpayer money have already been spent to undergird SBMs. In December 2014 alone, $420 million was awarded to SBMs. This extra funding was extended via No Cost Extensions (NCE) and OIG notes that CMS should issue specific guidance to make clear that the ACA restrictions within section 1311 also apply to funds made available through NCEs.

SBMs cannot be allowed to use hard-earned taxpayer dollars for expenses that are statutorily prohibited. Moreover, given the operational challenges of SBMs nationwide, the use of grant funds to support operations is not only a prohibited use of such funds but a short term fix that delays the time before structural defects have to be addressed.

Accordingly, we request the following:

To minimize the improper use of establishment grant funding for operations costs, will you develop and publish clearer guidance on what constitutes operational costs? If so, how will you ensure the new guidance prevents improper use of grant funds? If not, why not?
To minimize the improper use of establishment grant funding for operations costs, will you develop and publish clearer guidance on what constitutes design, development, and implementation costs? If so, how will you ensure the new guidance prevents improper use of grant funds? If not, why not?
Will you monitor SBMs use or potential use of establishment grant funds for operations costs? If so, what action will you take if prohibited use is found? If you will not monitor, why not?
Have you already engaged in monitoring improper use of establishment grant funds? If so, please list the SBMs involved and the amount of money misused. In addition, please list the steps made to remedy the misuse.
Please provide your timeline to address each of the issues raised above.

Please number your responses according to their corresponding questions. Please respond no later than May 18, 2015. Thank you for your cooperation in this important matter.

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