Tuesday, February 17, 2004

When I posted a few days ago about the problems with Georgia Medicaid I thought it was the usual bureaucratic incompetence or the desire of certain legislators to get pork-barrel projects funded. But I now fear that the refunds that Georgia Medicaid are asking for may be for a more nefarious purpose.

The Bush administration is headed for a confrontation with states over the financing of Medicaid, the nation's largest health program, as federal officials crack down on arrangements used by many states to shift costs to the federal government.

The federal action comes as states, struggling with severe fiscal problems, are cutting benefits and restricting eligibility for the program, which serves 50 million low-income people each year. Federal officials and auditors contend that states use creative bookkeeping and other ploys to obtain large amounts of federal Medicaid money without paying their share.

Washington and the states split Medicaid costs, with the federal government paying 50 percent and sometimes more than 70 percent.

But in many cases, the Bush administration says, states have paid their share with "phantom dollars," instead of state or local tax revenues......In some cases, it said, "states have created the illusion that they have made large Medicaid payments" to county hospitals and nursing homes, and they claimed federal Medicaid money to help defray the costs, even as they required counties to return most of the money to the state.

So the state demands a refund claiming that the provider was over compensated. Instead of returning the federal government's portion of the Medicaid funds, it holds on to them. Up until now this "laundering" of Medicaid funds has been limited to government facilities such as hospitals and nursing homes, but I wonder if the target audience for this practice has been expanded? Not that any of this is new. The quote attributed to Kathryn Allen :
"State financing schemes have driven up federal Medicaid costs. Congress has repeatedly tried to curtail such arrangements, but states have consistently developed new variations"

Sounds much like this(PDF) testimony before the Senate finance committee in September of 2000.

In brief, the current scheme inappropriately increases federal Medicaid payments by paying certain providers more than they would normally receive and then having the providers return the bulk of the extra monies to the state. By making an excess payment, the state generates additional federal matching funds, which can be used to pay its share of future Medicaid payments—thus generating even more federal matching funds— or spent however the state determines. The providers receiving the inflated payments and passing back the excess to the state are entities owned by local governments—for example, county-owned nursing homes and local hospital districts. According to HCFA, as of late July, 17 states have state plans that could allow them to use this practice, and 11 other states have drafted plans for doing so. The exact amount of additional federal Medicaid dollars generated through this process is unknown, but it is in the billions of dollars and growing. While most states do not specifically acknowledge how they will use the money that makes the round-trip back to their treasuries, intended uses reported by elected officials in some states include funding other health-care or education programs, as well as subsidizing a state tax cut.

Mr Johnson at The Business Word asks:

So is this the Enron story of state budgeting?

I would have to say yes. Taking federal money earmarked for Medicaid and using it to support a tax cut certainly looks "Enronesque".

Mr Holt has more to say at The Health Care Blog
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