MacIver News Service

By M.D. Kittle 

MADISON – They’ve been described as “Medicaid maximization schemes,” revenue manipulations, gimmicks. 

U.S. Sen. Ron Johnson has a more pointed expression for what some states have done to milk the system, to funnel more federal taxpayer dollars into their public health care coffers.

“I would call it legalized fraud,” the Oshkosh Republican said last week on the MacIver Newsmakers podcast.

“This is just a way to maximize the federal match into Medicaid and some states do more of these gimmicks than others and it creates a completely inequitable allocation of federal health care dollars …” Johnson added. 

Medicaid provides federal matching funds to states for money they spend on health care services for low-income individuals. Some states have taken the agreement to the extreme.

“This has been going on for years. We don’t have the information, nobody knows how extensive this is. My guess is hundreds of billions of dollars worth, certainly over multiple years, but its tens of billions of dollars in any particular year,” Johnson said. 

States artificially inflate the federal government’s contribution to the Medicaid program while reducing their state share, according to a report by the majority staff of the Homeland Security and Governmental Affairs Committee. Johnson serves as chairman of the committee. 

The report is titled, “The Centers For Medicare & Medicaid Services Has Been a Poor Steward of Federal Medicaid Dollars.” 

In testimony before the committee in August, U.S. Government Accountability Office Comptroller General Gene Dodaro told members that “the range of (state Medicaid) gimmicks … is almost limitless.”

States and the federal government share Medicaid expenses. The federal obligation varies based on a state’s per capita income. In Wisconsin, the federal government picks up about 60 percent of the Medicaid budget to the state’s 40 percent. The federal contribution, according to the Congressional Research Service, is “open-ended.” 

As Dodaro testified, the “open-ended” nature of the federal government’s Medicaid funding obligation incentivizes states to create “all of these types of programs to try to draw down federal dollars.” 

Some of the more popular gimmicks, according to Johnson, include: 

  • Intergovernmental Transfers (IGTs), which include “transfers of … funds between State and/or local public Medicaid providers and the State Medicaid agency” in ways designed to trigger the release of federal matching funds.
  • Provider taxes, in which states tax health care providers and then return the funds to the providers, triggering a federal match. 

In one example of questionable transfers, Michigan ‘paid’ $122 million in state funds to county health facilities, along with a $155 million federal match triggered by the state government – and the same day, the county facilities transferred all but $6 million of the $277 million total back to the state,” Johnson wrote, referencing a Government Accountability Office report, on IGT-fostered “State Financing Schemes.” The state “realized a net gain of $149 million over the state’s original outlay of $122 million,” the report found.

Johnson said Wisconsin “may be taking advantage” of the open-ended system in some circumstances, but the Badger State is not among the primary abusers.  

States have used enhanced federal funds through Intergovernmental Transfers “for a range of purposes with no direct link to improving quality of care or increasing Medicaid services,” according to a report from the Inspector General of the U.S. Department of Health and Human Services.

More than 40 states impose provider taxes on hospitals, described as a “Medicaid shell game” in December 2017 opinion piece published in the Wall Street Journal. The Wisconsin Hospital Assessment was first implemented in fiscal year 2009, according to the Wisconsin Department of Health Services. 

Oregon state Rep. Mitch Greenlick, a Democrat from Portland, described his state’s provider tax as a “dream tax.” 

“We collect the tax from hospitals, we put it up as a match for federal money, and then we give it back to the hospitals,” Greenlick, chairman of the Legislature’s House Health Care Committee said, as reported by the Portland Tribune. “They have enough money to put people in Medicaid so they have health insurance to pay for hospitalizations.” 

While states may use the Medicaid gimmicks at the expense of federal taxpayers, CMS has done a shoddy job at collecting information, according to the General Accounting Office. CMS “generally does not require (or otherwise collect) information from states on the funds they use to finance Medicaid, nor ensure that the data that it does collect are accurate and complete,” GAO noted in its 2015 report. And many state supplemental payments to health care providers, made separately from regular claims-based payments for Medicaid services, are not subject to audits, GAO found. 

Johnson said CMS’ failure to inform drives him nuts. 

“I’m an accountant, I come from the business world. You need information. (I think) the fact that the government doesn’t collect the information is because they don’t want anybody to know,” the senator said. 

Johnson intends to get answers. 

In a letter sent last month, he asked the CMS administrator for the agency’s plan to address Medicaid maximization schemes, including proposed actions to hold states and providers accountable for intergovernmental transfers. The senator also wants to know what CMS intends to do about provider taxes used as a Medicaid maximization scheme. And he wants to know why CMS historically has not collected accurate and complete data from states on the sources of funds they use to finance the non-federal Medicaid share.

M.D. Kittle is an investigative reporter with the MacIver Institute. Used with permission.