Federal, state governments spar over Medicaid money

Monday, December 10, 2001

JEFFERSON CITY, Mo. -- For about a decade now, hospitals and the state government have engaged in a clever endeavor to maximize the amount of Medicaid money Missouri receives from the federal government.

Hospitals pay the state a special tax based on their net revenues from patients, insurers and the government-funded Medicaid and Medicare programs.

The state then spends that money on health care, triggering more federal Medicaid funds. For every $1 of state money, the federal government kicks in another $1.50. And much of that money goes right back to hospitals.

So far, there is nothing too usual; many states do the same.

What makes Missouri's approach different is that hospitals, through private collaboration, redistribute the money they get from the state.

Those that received more give to those that received less, so by sharing the wealth all end up with about the same amount they had paid in taxes.

A recent federal audit says that arrangement is illegal under a 1991 U.S. law. Thomas Scully, the administrator of the federal Medicaid program, is threatening to withhold more than $1.6 billion from the state.

'We found a loophole'

Scully, then a White House staffer, helped negotiate the 1991 law.

"It was abundantly clear then, and under this draft audit, that a tax like Missouri's is inconsistent with the statute," he wrote in a recent letter to Gov. Bob Holden.

Rather than violating the law, Missouri hospital officials say they are taking full advantage of it.

"We found a loophole," said Dwight Fine, senior vice president of the Missouri Hospital Association. "I don't think the authors of the law anticipated that states like Missouri, or hospital associations like ours, would be willing to think through how can we work together."

Fine acknowledges that it would be illegal if the state were to distribute the tax revenues to hospitals so that all received back what they had paid.

But the law says nothing about the hospitals doing the same thing on their own, he said.

Missouri officials say they had no role in setting up the hospital association's redistribution formula, nor any interest in what they are doing with the state payments.

"We think this is a legitimate tax and have always thought that," said Greg Vadner, Missouri's Medicaid director.

Missouri's creative arrangement dates to March 1991, when Republican John Ashcroft was governor -- a fact that Holden, a Democrat, is quick to point out.

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