NCPA - National Center for Policy Analysis


May 20, 2008

Every politician moans that entitlement spending is out of control, so it ought to be easy at least to stop blatant fraud and abuse.  Evidently not, says the Wall Street Journal.

The scene of this crime is Medicaid; it turns out that states have been goosing their financing arrangements to maximize their federal payouts and dump more of their costs onto taxpayers nationwide.  The swindle works like this, says the Journal:

  • A state overpays state-run health-care providers, such as county hospitals or nursing homes, for Medicaid benefits far in excess of its typical rates.
  • Then the federal government reimburses the state for "half" of the inflated bills.
  • Once the state bags the extra matching funds, the hospital is required to rebate the extra money it received at the scam's outset.

Cash thus makes a round trip from states to providers and back to the states -- all to dupe Washington.  The right word for this is fraud.  A corporation caught in this kind of self-dealing -- faking payments to extract billions, then laundering the money -- would be indicted.  In fact, a new industry of contingency-fee consultants has sprung up to help states find and exploit the "ambiguities" in Medicaid's regulatory wasteland.  All the feds can do is notice loopholes when they get too expensive and close them, whereupon the cycle starts over.

A reform alternative would be for the government to distribute block grants, rather than a set fee for every Medicaid service, says the Journal.  That would amputate Washington from state accounting and insulate taxpayers from these shakedowns.  States would have an incentive to spend more responsibly, and also craft innovative policies without Beltway micromanagement.

Source: Editorial, "Medicaid Money Laundering," Wall Street Journal, May 19, 2008.

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