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LTC Bullet:

HCFA Slams Medicaid Loophole Shut!

Thursday November 2, 2000


But hold your applause. It's not what you think. HCFA has barely lifted a finger to close Medicaid nursing home eligibility loopholes. Medicaid estate planning attorneys still slip their prosperous clients through lucrative interstices in the law with impunity. A hemorrhage in welfare resources continues to bleed from the deserving poor to the privileged, legally-advised few. No, HCFA's not attacking the real abusers of Medicaid. HCFA's attacking the program itself, or rather its partners in administering the program, the states. Here's the story:

In a desperate attempt to supplement their Medicaid budgets, twenty states took a page out of the elder law attorneys' playbook and figured a clever way to game the system. In a nutshell, they reimbursed some of their state and county health care facilities (including nursing homes) excessively, used the inflated charges to claim extra Federal matching funds, and then made the facilities kick back the difference through an "intergovernmental transfer." All of this was perfectly legal, just like the clever gambits used by Medicaid planning attorneys. Nevertheless, a GAO report on the practice claimed that Michigan bumped its Federal match rate from 56 percent to 68 percent using this practice and that the total impact could be $2 billion "in annual excessive federal payments." (GAO, "Medicaid: State Financing Schemes Again Drive Up Federal Payments," Senate testimony on 9/9/00,GAO/T- HEHS-00-193, at

HCFA sprang into action. According to a press release dated 10/5/00: "HHS Secretary Donna E. Shalala today announced a proposed rule to close a loophole in Medicaid regulations that costs federal taxpayers billions of dollars without commensurate increases in coverage or improvements in the care provided to Medicaid beneficiaries. . . . The proposed regulation would revise Medicaid's 'upper payment limit' rules, stopping states from using certain accounting techniques to inappropriately obtain extra federal Medicaid matching funds that are not necessarily spent on health-care services for Medicaid beneficiaries. . . . 'We cannot stand by while billions of taxpayer dollars are used without the accountability that federal taxpayers deserve,' Secretary Shalala said. 'However well-intentioned some states may have been, the practice today clearly constitutes an abuse of the Medicaid system. State and the federal government must operate the Medicaid program in a fiscally sound manner that serves both Medicaid patients and the taxpayers who support the program.'"

The American Health Care Association is fighting to preserve these "intergovernmental transfers." Why? AHCA represents nursing homes that are heavily dependent on Medicaid's notoriously low reimbursements. Upwards of 70 percent of their residents are Medicaid recipients and Medicaid often pays less than the cost of providing the care (on average, Medicaid pays only 80 percent of the private-pay rate). When you're operating at a loss, increasing your volume won't help. You have to fight for increased reimbursements. For the nursing homes and their trade association, every extra dollar a state Medicaid program can wheedle out of the Feds is one more dollar with which to serve their residents and pay their staff.

Why are so many nursing home residents on Medicaid and why is Medicaid unable to pay a market rate for their care? The answer is complicated, but it has a lot to do with those other loopholes in Medicaid and the lawyers who profit from them. If Secretary Shalala and HCFA put as much effort into closing Medicaid nursing home eligibility loopholes as they are putting into closing the "intergovernmental transfer" loopholes, they might do som genuine good.

If people could no longer preserve their wealth after the insurable event occurs by transferring the enormous financial liability of nursing home care to tax- payers and nursing home owners, several beneficial results would follow: (1) more people would pay longer privately for home and community-based services; (2) HCBS and nursing home providers would have more full-pay, private patients and would therefore be able to provide better care to all, including those remaining on Medicaid; (3) the public would see more clearly than now the importance of planning early and saving or insuring for long-term care; and (4) Medicaid estate planning attorneys would no longer be able to practice what is arguably the legalized elder abuse of artificially impoverishing their clients.

The good news is that most of the problems afflicting our insane system of long-term care financing in the United States are self-inflicted. We can fix them efficiently and inexpensively while improving access to quality care for all Americans. To order the Center for Long-Term Care Financing's white paper on how to achieve this objective-- "LTC Choice:A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" ($24.95; free to media and lawmakers)--reply to this e-mail with your order and full contact information or contact Sarah Allen at 425-467-6840.