Hospital Taxes and Medicaid Con Jobs

Beware the Hospital tax. And the same goes for taxes on nursing homes. It is likely if your state legislature is looking at increasing these taxes, it is in the service of Medicaid money laundering.

The Government Accountability Office explains how it works. Medicaid is a federal matching program. States can tailor their own program by electing to cover optional services (beyond the basic Medicaid program), or by expanding eligibility to arrive at a total cost for operating Medicaid. The federal government pays for at least half of the total program, and the state pays for the remainder.  In an effort to extract more matching funds from the federal government, states play around with the total cost portion.

One such scheme involves nursing homes and other state-run health care providers. The state overpays the hospital for Medicaid benefits. Then the federal government reimburses the state for half of the tab. The state keeps extra funds and the hospital must rebate the extra money it initially received from the state. As The Wall Street Journal writes, “Cash thus makes a round trip from the states to providers and back to the states: all to dupe Washington.”

Brien Farley at Budget & Tax News explains how this works with a tax.  In June 2009, Wisconsin increased taxes on state hospitals by 20 percent. This raised the federal Medicaid matching fund from $635 million to $796 million. The state siphoned off $292 million of that increased match to spend on other things. Oregon attempted the same thing with a 4 percent tax on the 25 largest hospitals in the state. And Ohio’s 2010-2011 budget includes a $145 million tax on Ohio state hospitals.

What’s even more galling is that hospitals ask the state to be taxed. As Katherine Mangu-Ward at Reason puts it,“Hospitals Beg Iowa to Tax Them in Medicaid Scam.”

GAO calls these “creative financing schemes” “inappropriate” and recommends Congress put a stop to it. Senator Tom Coburn (R-OK) notes without reform, expanding government  health care will simply guarantee more of the same.