Welcome to Bizarro World (Part 2 of Little Known Medicaid Facts)

Only in Medicaid would a provider ask you to tax them and in doing so, make more money. See, when one mixes state financing and medicaid policy with a dollop of federal money, the results often defy logic. Take for example, Florida's current special session to amend their 2009 budget.

Going in to the special session, Florida's 680 nursing homes were facing a 10 percent Medicaid rate reduction, which amouts to about $220M through the next fiscal year ending 6/30/10. This is on top of significant cuts during the last two legislative sessions and an increasing focus on quality and accountability for nursing homes. Nursing homes could easily be justified by saying, "No thanks, I gave at the office."

But then something happened...instead of waiting for the much-needed federal financial assistance in the stimulus bill working its way through the U.S. Congress, the State of Florida decided to take a short-cut to meet its immediate needs. As the Orlando Sentinel observed, "House and Senate negotiators Saturday agreed to let the nursing homes use some federal budgetary alchemy to offset that cut as well as previous reductions imposed in 2008."

The basics are this, for every $45 the state of Florida puts up, the Federal government matches it with $55. Thus, if a state cuts $45M from their Medicaid budget, the state also loses the $55M federal match for a total hit of $100M to the economy. But if the state can have someone else put up its share of $45M through locality or provider "contributions" (aka taxes, fees, and assesments), the state can reduce its liability to $0 and still receive the federal match. Although sometimes complicated in practice, this method of reducing state liability is practiced in 32 states across the country and is most commonly used for hospitals.

In this case, Florida's nursing homes proposed levying a 5.3 percent "quality assessment" fee on their own revenue. Whereas before the state proposed to cut 10 percent (state share of 4.5 percent and federal share of 5.5 percent), now the state will still cut its 4.5 percent but will replace it with the 5.3 percent "tax" on nursing homes and based on simple ratios, the federal match on 5.3 percent would be 6.5 percent for a total of about 11.8 percent. So, the state plugged a 10 percent hole with a 1.8 percent increase...everyone ends up a winner...except for the Federal taxpayer.

These machinations are necessary and even helpful for states given the current financing arrangement between the states and the Federal Government (give me a 120 percent immediate return on investment any day) but the long-term concern is that they add more complexity to an already complex system and they lead states to focus more on creative accounting than they do on improving the performance of their health systems.