Washington State Lobbies Federal Government for More Money Through Medicaid Loophole

Washington state Gov. Gary Locke (D) last week asked three members of the state's Republican congressional delegation to "help secure ... extra [federal] funding" through greater use of the Medicaid upper payment limit, commonly known as the Medicaid loophole, the Seattle Times reports. Last year, state officials discovered that because of "more generous reimbursement calculations" being used by other states, Washington state could get more money through the loophole, under which states pay local facilities more than the actual cost of health services, receive inflated Medicaid payments from the federal government and then require the facilities to return the extra funds to the state. Consequently, Washington state has increased its Medicaid claims for past, present and future budget years, asking for $1.1 billion in federal funds through 2005, compared to its initial request of $255 million. In his letter to the members of Congress, Locke wrote, "With a united front here in Olympia and in Congress, we can make a strong case for an equitable and reasonable settlement that avoids disaster and credits us all."

Funding Argument
State and federal officials have argued over the state's claim for additional funds for the last few months. The state has justified its use of the loophole by saying it spends the additional funds on public health programs. The Times reports that in fiscal year 2000, Washington state made $147 million in overpayments to nursing homes and received an extra $76 million in matching funds. But less than 7% of the overpayment was spent on Medicaid services, and the rest of the money was "returned to the state," according to a report from the HHS Office of Inspector General (Thomas, Seattle Times, 5/24). To combat what it maintains is abuse of the loophole, Bush administration officials this month plan to phase out some states' use of the loophole. Officials plan to completely eliminate use of the loophole by 2010 (Kaiser Daily Health Policy Report, 5/15). Administration officials have said that Washington state should "not bank on" receiving more money than it already has via the loophole. But Doug Porter, the state's Medicaid director, said that without the additional funds, $200 million of which are included in the state's current budget, the state will have to make "drastic cuts" to low-income health programs (Seattle Times, 5/24).