The swindle works like this: A state overpays state-run health-care providers, such as county hospitals or nursing homes, for Medicaid benefits far in excess of its typical rates. Then the federal government reimburses the state for "half" of the inflated bills. Once the state bags the extra matching funds, the hospital is required to rebate the extra money it received at the scam's outset. Cash thus makes a round trip from states to providers and back to the states – all to dupe Washington.This is not the primary reason to oppose Medicaid. But it does show the corrosive and corrupting effect that government money has in health care, especially when there are perverse incentives caused by the federal government paying matching funds for state expenditures. The only way to ultimately stop this sort of blatant fraud is to get the government out of health care.
...The right word for this is fraud. A corporation caught in this kind of self-dealing – faking payments to extract billions, then laundering the money – would be indicted. In fact, a new industry of contingency-fee consultants has sprung up to help states find and exploit the "ambiguities" in Medicaid's regulatory wasteland. All the feds can do is notice loopholes when they get too expensive and close them, whereupon the cycle starts over.
(Via State House Call.)