Md. officials push 'scam' to double Medicaid funds


ANNAPOLIS -- Officially, the Schaefer administration calls its effort to "leverage" an extra $70 million in Medicaid money next year "The Sabatini Plan."

Unofficially, they call it The Scam, The Flim Flam and FTF -- for Fool The Feds.

If it works, the federal government -- also known as the American Taxpayer and the Scam-ee -- will send Maryland twice as much as it does now to cover the cost of a poor person's visit to the doctor under the Medicaid program.

Gov. William Donald Schaefer and his administration are taking advantage of a certain imprecision or ambiguity in federal law. The state's plan depends on the doctors' willingness to increase their fees without actually getting more money and the willingness of Washington to accept without question what the state is doing.

"We've rolled the dice," said one administration budget official.

In short, the state would collect twice as much from the federal government for Medicaid payments to doctors and effectively pocket the difference as a "tax" rather than passing it on to the doctor.

The plan involves a number of steps, including some emergency state legislation, but at bottom the idea is simple:

Since 50 percent of Maryland's Medicaid bill is covered by the federal government, Maryland can double its federal reimbursement by doubling doctor fees. The additional federal money is reclaimed from doctors as the so-called "tax."

In 1985, federal regulations were issued permitting the use of public and private donations as a part of a state's share of the Medicaid program for the entire Medicaid program. Until then, donations were matched by Washington in only limited fashion.

The Health Care Financing Administration subsequently proposed regulations that tried to limit matchable donations or "taxes," recognizing only money that represented legitimate -- as opposed to manufactured -- Medicaid expenditures. HCFA's regulations are now being held in abeyance while Congress decides how it wishes to proceed.

Meanwhile, 17 states are engaged in some form of this donation or taxing system.

Tennessee, one of the first states to initiate one of these schemes, raises its additional Medicaid money through donations from hospitals and by imposing license fees on nursing homes. Connecticut, Maine and New Hampshire also employ a licensing tax.

The author of Maryland's approach, Nelson J. Sabatini -- a deputy health secretary whose appointment as acting health secretary was announced by the governor's office yesterday -- called it "creative financing."

"This is legal, honest," he said.

Attorney General J. Joseph Curran Jr. said his reading of federal lawindicated that the Sabatini plan was "legal." And his assistant, Dennis Sweeney, said that state officials might be regarded as derelict if they did not take advantage of the federal law.

But Gail R. Wilensky, administrator of the federal Health Care Financing Administration, said the plan came closer to a scam. At best, she said, it seems to be a violation of the spirit of the law and, at worst, illegal.

Ms. Wilensky said her office wanted to examine Maryland's pla to be certain there wasn't "some gaming going on or otherwise inappropriate behavior.

"Our only concern is that federal matching dollars go t something legitimate -- not some quick shuffle of funds. There's a lot of concern that if this is not responded to, you could have money chasing itself around picking up federal dollars in a very serious manner," she said.

If Maryland has found a legal way to defeat the intent of th federal regulations, she said, the regulations must be amended.

Ms. Wilensky of HCFA said the law did not permit states to us the new "taxes" or fees as a medical cost to be reimbursed by Washington. Perhaps so, but Maryland and other states contend that its creative fund raising is permitted because the law prohibits HCFA from interfering in a state's taxing policy.

HCFA has no intention of ruling on taxes imposed by states, Ms. Wilensky said. But she worries that if every state in the nation did what Maryland and 16 other states are doing, the cost to the federal treasury would be far greater than the current $500 million.

A study of the states now leveraging more Medicaid funds, completed recently by auditors at the Department of Health and Human Services' inspector general office, concluded:

"The potential for future increases is inestimable." A tightening of the regulations is necessary "to prevent the distortion of the federal/state financial partnership.

The view from Annapolis is somewhat different.

Mr. Sabatini, the Schaefer administration and some legislativ leaders find justification for their plan in the federal government's insistence upon mandating more and more health insurance for more and more people -- while providing no money to cover the costs.

"There's a bit of of one-upmanship -- getting even with the feds -- that pervades all of this," said Dennis H. Parkinson, deputy budget secretary.

"State governments are required to submit balanced budgets and maintain balanced budgets. So, when you have Uncle Sam taking political credit from popular programs -- but giving no help -- it doesn't make a lot of people very happy," he said.

The plan and the enabling state legislation are moving forward -- with the hope of implementation in May in order to take advantage of the last two months of this fiscal year. If the bills can be passed quickly enough, the state can take an additional $25 million dip into the Medicaid fund for May and June. For next year, the extra payment is estimated at $70 million.

The hoped-for money, said Delegate Charles J. Ryan, D-Prince George's, already is being factored in by the administration to balance the current year's budget. Mr. Ryan referred to the plan as a "shell game."

"I venture to say it won't last long," said the House Appropriations Committee chairman. He said the leveraged money could be used only for health-related expenses. But that frees for other uses money that otherwise might have been needed for health care.

Schaefer administration sources insist the governor was reluctant to approve Mr. Sabatini's plan.

When Mr. Schaefer announced it at a pre-Christmas news conference as a way to save the kidney dialysis program and the pharmacy assistance program, he was said to be so skittish that his aides urged him not to say how he really felt. He told reporters how he felt, anyway.

"At any other time, Governor Schaefer would not have bought into this, but when you see the programs that might start to get cut, the temptation is hard to resist," Mr. Parkinson said.

State officials are not the only supporters.

Susan Leviton, a representative of Advocates for Children and Youth, said, "I think it's wonderful because we've always used Medicaid money for the elderly. No money is left to deal with so many other health problems of the poor."

There remains a certain level of apprehension.

If more states get creative, Mr. Parkinson said, "You could start generating significant numbers." When the cost exceeds the $1 billion mark, he predicted, the end will be near.

"It's just a matter of time," he said.

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