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Romney’s Medicaid shell game

Mitt Romney is lambasting federal aid in his campaign for the presidency, including derisive comments against those who receive government assistance. But he pulled all the stops to pursue federal aid as governor of Massachusetts, even hiring “revenue maximization” contractors to scour federal programs for every possible penny — and using financial schemes to maximize and then divert the aid from his needy constituents.

In his first budget proposal, Romney promised balancing the budget without tapping reserves, and “without the use of fiscal gimmicks.” However, buried in the details, he suggested tapping reserves such as taking $4 million from the Catastrophic Illness in Children Relief Fund, and he included fiscal gimmicks to maximize and divert federal aid into his general state coffers.

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His strategies are akin to tax schemes using offshore bank accounts — but instead of avoiding federal taxes, seeking to pilfer the federal treasury. The Wall Street Journal labeled such financing mechanisms “Medicaid Money Laundering” and a “swindle.”

Medicaid is a matching grant program. If a state with a 50 percent match rate like Massachusetts spends $50 on qualifying services, the federal government will provide an additional $50 so there is $100 total for Medicaid services. The federal match payment is much higher in some states, such as Mississippi where its almost 75 percent.

Unfortunately, some states concocted budget shell games, often with private consultants, providing an illusion of state spending to claim federal matching funds, when no state spending has occurred. As governor of New Hampshire, Judd Gregg developed such a practice labeled “Mediscam.” Gregg taxed hospitals serving the poor, routed the money into an “uncompensated care fund” which he sent right back to the hospitals, and used the round-trip of money to claim federal matching funds. Then, the swindle gets worse, because he routed the federal Medicaid funds into his general coffers rather than for Medicaid services.

Romney’s schemes were similar to Gregg’s. Buried in his 2004 budget, Romney proposed maximizing federal aid by taxing hospitals, shifting the resulting tax payments in and out of an uncompensated care fund, back to hospitals as adjustment payments, and diverting resulting federal Medicaid funds to state general revenue. He also proposed using taxes on nursing homes and pharmacies in his efforts to maximize and divert federal aid.

In such strategies, health care facilities serving the poor are used to claim federal funds to help the poor. But the health care facilities and the poor may get nothing, as the state diverts the federal aid to general coffers — and revenue maximization contractors reap millions in contingency fees. Romney used such private companies to help carryout his strategies.

After a US General Accounting Office report responding to concerns of Republican Senator Charles Grassley, the Romney administration vigorously defended using contingency-fee revenue maximization consultants and revenue practices – that the GAO labeled illusory. The GAO responded that “hospitals should benefit from increased federal reimbursements and Massachusetts’s arrangement appeared to result in lower payments to hospitals, despite increased claims for federal reimbursement.” The Romney administration even defended double (if not quadruple) billing practices “of allowing multiple agencies to bill Medicaid” for “services for the same beneficiary.” The GAO concluded that the Romney administration “did not provide convincing evidence that the [Medicaid] services provided by the four state agencies were unique,” and the Bush administration agreed with the GAO’s conclusions.

The Bush administration implemented regulations trying to reduce such practices, and the Obama administration continues efforts to improve fiscal integrity in the Medicaid program. However, Romney would virtually end federal oversight by block-granting federal Medicaid funds to states.

It’s not hard to imagine how a governor — one that employs complex shell games to find loopholes in federal rules in order to maximize and divert federal aid — would use the federal funds if handed to the state without any federal oversight. The answer to state misuse of federal aid is not to give those states even more discretion to do whatever they wish – but to simplify the claiming process, reduce loopholes allowing the revenue schemes, and improve oversight to ensure Medicaid funds are used as intended.

Romney has undergone dramatic and hard to follow shifts in his apparent views of government aid. Romney2004 proposed cutting healthcare while simultaneously proposing illusory schemes to maximize and divert federal Medicaid funds. Romney2006 changed course with the first nearly universal healthcare plan. Now Romney2012 is turning back to cuts, denouncing federal aid he once schemed to maximize and divert, condemning those who need government aid, and seeking repeal of national health care reform that is nearly identical to the plan he signed into law. And now he proposes giving all the federal money from the Medicaid program to states without federal control.

Romney2004 would have a field day with Romney2012’s plan.

Daniel L. Hatcher is an associate professor of law at the University of Baltimore.
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