States Are Using "Creative Accounting" to Fill the Medicaid Reimbursement Gap, But Is It Legal?

Budget shortfalls have led the states to cut funding for most government programs, including reimbursements given to health care providers for expenditures on Medicaid patients. While the state revenues have gone down during the recession these past years, the expense of Medicaid has steadily increased. The states must respond to this increase in demand in health care and its resulting cost. Resisting the natural response to downsized Medicaid programs and coverage, many states have implemented "creative accounting" techniques to fill the health care provider reimbursement gap and maintain health care for their needy citizens.

Medicaid provides health insurance to 50 million low-income Americans. Medicaid accounts for about 20 percent of all state spending; it is the largest source of public funding for long-term care. Between 2001 and 2002 Medicaid expenditures grew by 13 percent and are continuing to rise. The states individually administer their Medicaid programs and also provide some of the funding, but matching funds from the federal government provide the most subsidizing. This fiscal arrangement creates an incentive for states to spend more on Medicaid because they will receive a proportionately larger amount in federal monies. In addition, if the states collected taxes specifically to pay for these increased expenditures, it would result in a complete net gain for the states' budgets.

Many states are just doing that with the "bed-tax". Under a bed-tax program, every nursing home in the state is charged a per diem fee for each of its beds, occupied or not, Medicaid or private paying, and must pay this annually to the state in addition to other taxes and license fees. The revenue produced from the tax is then used towards the state's Medicaid expenses. A common use for the money is to reimburse nursing homes for their Medicaid patients. Georgia, for example, has a $7.80 a day per bed fee for its nursing homes. From this, the state expects to collect about $89 million in 2003. This will net an additional $131 million in federal money for the state. Creative accounting, like the bed-tax, seems to be a cure for ailing state Medicaid programs. Is it too good to be true?