What Are Intergovernmental Transfers (IGTs)?

Intergovernmental Transfers (IGTs) play a crucial role in financing Medicaid reimbursement by supplying the non-federal share of many supplemental payment programs.

While essential to state flexibility, IGTs introduce significant fiscal oversight, reporting, and audit responsibilities to ensure federal funds are used appropriately and that no circular financing arrangements occur.

How IGTs Affect Medicaid Reimbursement

• IGTs directly influence the flow of federal matching funds (FMAP) within state Medicaid programs.
• When a public entity transfers funds to the state, those funds become part of the total Medicaid payment pool, allowing the state to draw the corresponding federal match.
• This structure enables states to maintain or expand Medicaid provider payments without increasing general fund spending.
• Common IGT-financed reimbursements include DSH, UPL, and directed payments in managed care.
• Because IGTs impact total Medicaid expenditures, they must be carefully documented to ensure compliance with federal upper payment and budget neutrality requirements.

Funding Flow and Reimbursement Mechanics

• Once an IGT is received, the state Medicaid agency records it as state share revenue.
• The state then submits a claim to CMS for the federal match under the applicable FMAP rate.
• The combined funds—state share plus federal share—form the payment base for Medicaid disbursements.
• These payments are distributed to providers as supplemental reimbursements, typically outside normal claim cycles.
• Each transaction must be reported in the CMS-64 expenditure report to maintain financial transparency.

Fiscal Limitations and Federal Constraints

• Federal rules prohibit the use of federal-origin funds (e.g., grants, loans, or pass-through dollars) as IGT sources.
• All transfers must represent public funds under governmental control, derived from state or local tax revenues.
• States must certify that IGTs are voluntary and non-recursive—meaning the transferring entity does not receive payment back in exchange for its contribution.
• Failure to comply can result in disallowance of federal match or recoupment of FFP (Federal Financial Participation) funds.
• CMS may request documentation of IGT sources at any time as part of a financial management review or audit.

Audit and Compliance Exposure

• The Office of Inspector General (OIG) and CMS auditors frequently review IGT programs to ensure integrity in Medicaid financing.
• Common audit findings include:
• IGTs traced to federal or ineligible sources.
• Lack of documentation for fund origin or certification.
• Circular transactions where payments are returned to contributors.
• States found in violation must repay the federal share, often triggering program reforms or new CMS-approved State Plan Amendments (SPAs).
• Robust internal audit procedures and quarterly reconciliation reports help minimize exposure and ensure federal compliance.

Fiscal Risks and Reform Trends

• Overreliance on IGTs can lead to budget fragility, especially if local public entities face revenue shortfalls or legal restrictions on transfers.
• Some states have adopted hybrid financing models, pairing IGTs with CPEs to diversify the state share and reduce audit risk.
• CMS continues to refine its IGT oversight through:
• Expanded financial reporting templates within CMS-64.
• Increased transparency requirements in SPAs and managed care approvals.
• Guidance aligning IGTs with value-based purchasing and payment equity objectives.
• These reforms aim to preserve the financial utility of IGTs while strengthening accountability and fiscal sustainability across Medicaid systems.

Key Takeaway

IGTs are both a powerful fiscal tool and a compliance-sensitive mechanism within Medicaid reimbursement. When properly managed, they allow states to leverage local resources and secure federal funding efficiently. However, without rigorous documentation and oversight, they present significant audit and disallowance risks.

Transparency, accurate reporting, and CMS-aligned controls remain essential to ensure IGTs continue supporting Medicaid access, equity, and financial integrity.

While Intergovernmental Transfers (IGTs) are primarily a financing mechanism, their impact extends well beyond fiscal operations. By allowing states to leverage local public resources for Medicaid funding, IGTs indirectly shape care access, equity, and sustainability within safety-net systems.
Properly managed, IGTs help ensure that hospitals serving vulnerable populations receive the financial support necessary to maintain quality and continuity of care.

Supporting Access Through Public-Provider Financing

• IGTs enable county and public hospitals to contribute directly to the Medicaid system, ensuring they can recover costs for high volumes of low-income patients.
• This financing structure helps sustain critical access, trauma, and teaching hospitals that form the backbone of care for Medicaid and uninsured populations.
• Without IGTs, many public facilities—particularly in rural or high-need urban areas—would face funding shortfalls that limit services or staffing capacity.
• By stabilizing these hospitals financially, IGTs preserve access to emergency, inpatient, and specialty care for vulnerable groups.

Advancing Equity Across the Medicaid Delivery System

• Because IGTs originate from public sources, they reinforce the principle that state and local governments share responsibility for equitable healthcare access.
• Transfers often flow from higher-revenue counties or public hospital systems into broader statewide payment pools, redistributing resources to areas of greater need.
• This intergovernmental collaboration helps mitigate regional disparities in Medicaid reimbursement and promotes financial fairness among provider networks.
• When aligned with equitable payment models, IGTs support CMS’s overarching goals of reducing health disparities and strengthening the safety net.

Impact on Hospital Quality and Performance

• Stable Medicaid financing through IGTs allows hospitals to maintain adequate staffing, infrastructure, and quality improvement programs.
• Reliable supplemental payments funded by IGTs help prevent care degradation caused by chronic underpayment or delayed reimbursements.
• States incorporating value-based metrics into IGT-supported payment arrangements can further link financial stability to measurable quality outcomes.
• CMS has encouraged states to integrate IGT-funded payment models into delivery system reform and quality improvement initiatives, promoting accountability alongside fiscal flexibility.

Transparency and Accountability as Quality Drivers

• CMS’s increased oversight of IGTs—via public disclosure of funding sources, SPA transparency, and audit verification—is also a quality and equity measure.
• Transparent financing ensures that supplemental Medicaid payments reach intended providers and communities, not intermediaries or administrative layers.
• Clear visibility into IGT flows allows states to align funding with documented health outcome priorities, such as maternal health, behavioral health, and rural access.
• As Medicaid evolves toward value-based care, transparency in IGT operations will remain critical to balancing financial compliance with equitable program delivery.

Ensuring Sustainable Equity Through Oversight and Reform

• CMS continues to refine IGT regulations to improve accountability without undermining local flexibility.
• Policy initiatives focus on:
  • Enhanced reporting requirements in the CMS-64 for all non-federal share sources.
  • Guidance on managed care IGTs, ensuring fair and transparent payment across regions.
  • Integration with equity frameworks, prioritizing funding for hospitals serving medically underserved and minority populations.
• By maintaining strict oversight while encouraging public participation, IGT policy reforms aim to support long-term equity and fiscal integrity in Medicaid financing.