“Pervasive Fraud in Government Health Care Programs,” by Brian Blase, Paragon Health Institute
“Medicaid Money Laundering Harms Long-Term Care.
In a recent Prognosis, long-term care expert Stephen A. Moses highlights new research showing that Medicaid money laundering schemes not only waste taxpayer dollars but also harm nursing home residents—particularly patients with Alzheimer’s and dementia. The analysis draws heavily on a new National Bureau of Economic Research (NBER) working paper led by UCLA economist Martin Hackmann, which examines how Medicaid’s financing structure distorts state incentives in the nursing home sector.
Using audit reports, administrative data, and surveys, the NBER authors find that between 2000 and 2002, 16 states diverted at least $17 billion away from nursing homes through creative financing schemes. States inflated nominal reimbursement rates to increase federal matching funds, while paying providers much lower effective rates and redirecting the difference to other state uses.
The paper’s central case study focuses on Indiana and illustrates how these perverse incentives operate in practice. After federal restrictions in 2003 limited some diversion tactics, Indiana converted private nursing homes into county-owned facilities, allowing intergovernmental transfer (IGT) schemes to continue. (Last month, Paragon released a policy brief on the Medicaid IGT scheme.) By 2017, public nursing homes accounted for 95 percent of facilities in the state. The strategy proved highly effective at maximizing federal dollars: Indiana now receives nearly $1 billion annually in Medicaid supplemental payments for nursing facilities, with a large share diverted away from patient care. By encouraging rapid expansion of Medicaid volume at lower-quality facilities while siphoning resources away from care delivery, these schemes worsened outcomes for long-stay, high-need patients who depend most on consistent, high-quality nursing care.
Crucially, the NBER study finds that these schemes worsened patient outcomes. Medicaid nursing home volume increased most sharply in lower-quality facilities, particularly for long-stay Alzheimer’s and dementia patients. The authors estimate that Indiana’s financing distortions led to roughly 50 additional deaths per year and hundreds of millions of dollars in wasteful spending over time. The research underscores a clear lesson: creative Medicaid financing may enrich state budgets, but it may do so at the expense of the program’s most vulnerable patients.”
LTC Comment, Stephen A. Moses, President, Center for Long-Term Care Reform:
You can find my paper, titled “Medicaid Money Laundering Harms Long-Term Care,” that Brian summarizes in today’s newsletter, here.