Wisconsin to Use Medicaid ‘Loophole’ to Gain Additional Federal Funding

Three Wisconsin counties and the state government have planned a "wire-transfer" deal that will allow the state to take advantage of a Medicaid "loophole" to net additional federal Medicaid funds for its financially ailing nursing homes, the Milwaukee Journal Sentinel reports. On March 12, Walworth, Rock and Sheboygan counties will transfer $636.7 million to the state government, which will return the money several "[h]ours later" and report to the federal government that it had spent the money on Medicaid health care costs. The government will then reimburse the state at its normal Medicaid rate for 59% of those costs. The "bizarre financial handshake" between the counties and the state government uses a loophole in Medicaid upper payment limits (Walters, Milwaukee Journal Sentinel, 3/4). Under the loophole, states pay city- or county-owned care facilities more than the actual cost of health services, receive additional matching funds from HCFA and then require the facilities to return the extra state funds. The state then sometimes pays the facilities a small fee for participating, and uses the extra federal funds for health and/or non-health-related items (Kaiser Daily Health Policy Report, 1/8). In January, federal officials issued final rules to close the loophole, but President Bush ordered a 60-day extension of that and other pending regulations immediately after he took office. A HCFA spokesperson said that the state may "sneak in" and qualify for additional federal aid if its transfer is made by March 12. Under the "legal scam" between the counties and the state, Wisconsin will receive an additional $258 million in federal funds this year, and two additional similar transactions will put a total of $604 in federal money in the state's coffers by mid-2003.

Ailing Nursing Homes
The additional federal money will be used to offset some of the financial problems facing many of the state's nursing homes, the Journal Sentinel reports. Nursing homes in the three counties involved in the transfer lose more than $3.5 million a year, and many others in the state are facing similar losses. If the money transfer between the counties and the state is successful, 50 country-run nursing homes in the state will divide up the $258 million from the federal government and an additional $40 million from a "separate pot." The boosted reimbursements would help subsidize an 11% rate increase for nursing homes in the fiscal year beginning July 1 and a 4% rate increase in the following fiscal year, a state budget analyst said. Hospitals and other health care professionals also would receive some of the money.

A 'Money Laundering Scam'?
While some federal officials, including former HHS Secretary Donna Shalala, have labeled usage of the Medicaid loophole "an abuse of the Medicaid system," many state legislators are in favor of the practice. Wisconsin health officials view it as the only way to help narrow the $100 million gap between nursing home costs and Medicaid reimbursement. John Sauer, executive director of the Wisconsin Association of Homes and Services for the Aging, said, "What other (funding) option do we have? ... This was the only thing we could see out there." Gov. Scott McCallum (R) added, "Other states are doing it. It's a way of capturing federal funds, which is why it is being done." Sauer said that Medicaid covers 70% of nursing home residents in Wisconsin and that 14% of the state's nursing homes are bankrupt. Unless state payments for nursing home care increase, he warned, a "great many" of the state's homes will close or downsize, and fewer homes will accept Medicaid beneficiaries. If the additional federal funding does not come through, Sauer said, the nursing home industry will ask state legislators for an additional $46 million in state tax revenue next year and for $63 million from state taxes the year after that. But Gov. Scott McCallum (R) is not likely to allocate additional state tax dollars toward bailing out the nursing home industry. In a recent interview, McCallum said that his budget "was so tight that it could not spare any new state taxes for a rate increase for nursing homes." Other state lawmakers oppose the money-transfer deal, arguing that it is an illegal maneuver. State Sen. Bob Jauch (D) said, "This would be against the law if it wasn't government trying to do it -- it's called money laundering. This is a scam." And referring to the likely expiration of the loophole, he said, "We're using the credit card again to pay for programs when the money isn't going to be there in the future" (Milwaukee Journal Sentinel, 3/4). To view the exact loophole regulation, go to http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2001_register&docid=01-635-filed.pdf