Interpreting Trends in Spending Data: Effect of Prior Period Adjustments

Prior period adjustments are routinely applied to Medicaid expenditures to account for modifications in regular business processes (such as overpayment recoupments) and oversight activities (such as corrections that reclassify spending to the appropriate services or populations) to ensure that states receive the right amount of federal matching funds. In some circumstances, realigning prior period adjustments back to the period to which they apply may provide a more representative picture of actual spending and improve our understanding of spending trends. This issue brief focuses on how prior period adjustments can affect reported spending, including background on state requirements for reporting expenditures, why prior period adjustments are important in understanding spending trends, and what implications they may have for policy analysis and design.