Medicaid Maximization and Diversion: Illusory State Practices that Convert Federal Aid into General State Revenue

Abstract

For years, states have been using illusory schemes to maximize federal aid intended for Medicaid services-and then often diverting some or all of the resulting funds to other use. And states have help. Private revenue maximization consultants are hired by states to increase Medicaid claims, often for a contingency fee. We do not know the exact amount of federal Medicaid funds that has been diverted to state revenue and private profit each year, but it is in the billions.

The states' revenue strategies take advantage of the matching-grant structure of the Medicaid program. When state funds are spent on eligible health care services, the state can then claim federal Medicaid matching funds-intended to increase the amount of money available for the Medicaid services. For example, Maryland has a fifty percent match percentage for the Medicaid program. So when Maryland spends $500 dollars on eligible services, the state can claim another $500 from the federal government-for a total of $1,000 intended for health care for the poor.