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U.S. rebuffs Md.'s raid on Medicaid State's 'tax' plan aimed to increase federal share of program by $55 million


WASHINGTON -- The federal government unveiled a new regulation yesterday to prevent "surreptitious" raids on the Medicaid program that could save Washington billions but leave many states with deeper deficits -- at least $55 million deeper in Maryland, state officials say.

Maryland is one of the "most egregious" offenders in what federal officials have called "sleight of hand" schemes for shifting the cost of Medicaid to Washington, said Gail R. Wilensky, administrator of the Health Care Financing Administration.

The new regulation is still more bad financial news for Maryland, where state officials already have said they may have to meet in special session this fall to address a projected deficit of $300 million for the current fiscal year -- not including the $55 million in Medicaid reimbursements now in jeopardy.

Thirty-seven states in all have been trying to increase the money they get from Washington by collecting so-called provider taxes on hospitals or physicians.

By imposing a "tax" that increases the cost of medical services covered by Medicaid, Maryland increases its federal reimbursement -- because the federal government picks up 50 percent of the total.

The question that has to be asked of each state's plan, Dr. Wilensky said yesterday, is whether "net new dollars" have been put into the program. Maryland, she said, has produced a program that does not actually collect a tax and adds new dollars only "on paper."

The new regulations, Dr. Wilensky said, are designed to make sure states do not "surreptitiously up the matching federal dollars."

Medicaid programs this year serve more than 27 million poor, blind and disabled Americans. Combined state and federal spending on the programs last year was more than $70 billion.

In some states, the creative financing plans are so complicated that Dr. Wilensky and her analysts have a difficult time determining if there are actually new state funds in the plans, she said.

But Maryland's plan, she said, is transparently void of new state money.

"It's hard to think of something that less fits the definition of real new spending than nominally, on paper, doubling payment rates to physicians and then taxing it all back and saying that's our new expenditure for matching purposes," Dr. Wilensky said during an interview in her Washington office.

When Maryland's plan was adopted last year by the General Assembly, Gov. William Donald Schaefer was said to be highly skeptical of it -- and legislators openly referred to it as "The Scam" and even "FTF" for "Fool the Feds." Officials talked of how long they could realistically hope to get away with it, and the most optimistic forecast was one year.

Dr. Wilensky and her monitors are acting more quickly, however. Already, $13 million claimed by Maryland for the fiscal year that ended on June 30 has been disallowed by Washington.

"Our concern," she said, "is that many of these creative methods have ended up where it's all federal money, where there isn't any new money on the other side -- Maryland being one of the most egregious examples."

Maryland Health Secretary Nelson J. Sabatini, the state plan's architect, said he believes it tracks closely what was contemplated by the U.S. Congress in the budget act of 1990. Mr. Sabatini said Maryland Attorney General J. Joseph Curran approved the plan -- and said the state would be derelict if it did not attempt something similar to take advantage of the law.

In the current fiscal year, the so-called provider fee and voluntary donation schemes adopted by 37 states will cost the federal government an estimated $3 billion. Among the many new financing plans at work in various states, Maryland's is the only so-called provider fee or physician taxation system, Dr. Wilensky said.

Many states have adopted a tax on hospitals, and the plan of this kind that Florida has imposed, she said, appears to be largely acceptable.

A federal task force suggested in July that the state programs could cost the federal government $200 billion by 1996 if not constrained.

Although made public officially for the first time yesterday, the federal regulation had been reviewed weeks ago by Maryland officials, who said then that it appeared to outlaw Maryland's system. Dr. Wilensky said she believes this assessment is accurate.

States say they are forced to adopt plans such as Secretary Sabatini's because Washington orders new forms of medical coverage but provides no money to pay for those services.

"The states had implemented these programs because they had reached the limit in general taxes they could impose. They did it to keep their Medicaid programs afloat," said Jane Horvath, health policy director at the American Public Welfare Association, which represents state Medicaid agencies.

Dr. Wilensky said she places the current controversy within an over-arching argument about social and medical programs advocated by some people in Washington and the reluctance of taxpayers to raise the money needed to pay for such programs.

"You have two choices. You can reduce services or you can increase taxes to pay for them," she said.

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