The definition of a ‘Scam’ is a “confidence racket as a fraudulent means for unlawful gain money, or which may be lawful, but not praiseworthy or respectable”. Is it possible that Governor Edwards and the Department of Health (LDH) are running a ‘Scam’ with state hospitals and nursing homes in order to fiscally justify Medicaid expansion?
This question is being asked because over the course of the three legislative sessions in 2018 to fix the states “fiscal cliff” the following facts have come to light, and they do not add up;
• In spite of the state’s Medicaid costs doubling in the last nine years to $3.3 billion, Governor Edwards chose to expand Medicaid in Louisiana. Why?
• LDH has defended Medicaid expansion by claiming the state will save money by expanding. How?
• Proposed legislation to fight Medicaid Recipient Fraud, which could save the state $500 million or more, was resisted by the Governor and Senate Democrats. Why?
• The Nursing Home lobby, whose members rely on Medicaid dollars, makes substantial political contributions to the Governor and Senate leaders. Why?
• The Chairman of the Louisiana Hospital Association, whose members rely on Medicaid dollars to help balance their budgets, recently sent a very critical letter to the “Gang of No” ( 25 House Republicans who consistently voted against raising taxes this year as they wanted to instead see spending cuts primarily in the LDH budget for Medicaid). Was he upset about possible Medicaid cuts?
• Curiously, the state also charges our state hospitals and nursing homes substantial “Medicaid Provider Taxes”. Why?
• The Governor and Democrat legislators were elated over raising $800 million of sales taxes to balance the 2019 budget – while apparently ignoring recent federal projections which indicate Louisiana’s portion of the Medicaid tab will almost double again the $6.1 billion by 2026, and that the state could therefore be facing another $450 million fiscal cliff next year just from increased Medicaid costs. What happens then?
• The non-partisan Task Force recommendations made to the Legislature on budget and tax policy, and which included a recommendation for “a formal multi-year spending forecast on Medicaid”, was not adopted. Why not?
The above facts raise more questions than answers – until you read the following:

1. Why Tax Hospitals? It’s a Medicaid ‘Shell Game’, by Red Jahncke (The Wall Street Journal, 12-30-17);
2. Biden Was Right: Medicaid Provider Taxes A ‘Scam’ That Should Be Scrapped, by Brian Blasé (Forbes, 2-16-16):
3. The Price of Politics, by renowned “Watergate” journalist Bob Woodward.

These sources describe a shell game in which states assess Medicaid Provider Taxes against hospitals and nursing homes – usually accompanied with state guarantees of increased Medicaid supplemental payments to those same hospitals and nursing homes, largely financed from federal Medicaid matching funds.
As an illustration, assume that –

• The state assesses a hospital a Medicaid Provider Tax of $100 million;
• The state then funds back to the hospital $110 million of higher Medicaid supplemental payments;
• The federal government will then reimburse the state 60% of its Medicaid supplemental payments, or $66 million in this case , under Medicaid’s matching funds program;
• At this point the state has made a $56 million profit , the hospital has made a $10 million profit, and the federal government, i.e. taxpayers, has just lost another $66 million.
As you can see, this Medicaid ‘Scam’ shifts costs from states to the federal government in a convoluted, opaque and costly manner. It is also obvious that political leaders in both Washington and the state capitals have known about this ‘income redistribution plan’ for some time now. The above articles also imply that many Governors may have based their decision to expand Medicaid on this Medicaid ‘Scam’, and which will continue until Washington changes the rules or goes bankrupt. Which brings us to President Trump, who has promised to “drain the swamp” and eliminate fraud and waste. So what happens if Washington changes the Medicaid Provider Tax rules after Louisiana has one third of its population on Medicaid? How high will the fiscal cliff be then? Should Louisiana taxpayers be concerned?

Steve Gardes is a Certified Public Accountant (CPA) and Certified Valuation Analyst (CVA) with over 40 years of public accounting experience.

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Medicaid provider tax ‘scam’ with nursing homes and hospitals