Law professor: Romney exploited federal spending loophole in Mass.

A scathing op-ed in the Boston Globe explains then-Governor Romney's "Medicaid shell game"

By Alex Halperin

Published October 14, 2012 8:28PM (EDT)

Mitt Romney and running mate Rep. Paul Ryan R.-Wis. have been tough critics of federal spending during their run for the White House. But just as Ryan wasn’t shy about asking for stimulus money for Wisconsin, an October 12 Boston Globe op-ed explains how Romney exploited a regulatory loophole when he was governor of Massachusetts to attract excessive federal Medicaid funds without necessarily using them for their supposed purpose: health care for the poor.

Daniel Hatcher, associate professor at the University of Baltimore School of Law, called the approach:

Akin to tax schemes using offshore bank accounts — but instead of avoiding federal taxes, seeking to pilfer the federal treasury. The Wall Street Journal labeled such financing mechanisms “Medicaid Money Laundering” and a “swindle.”

…Buried in his 2004 budget, Romney proposed maximizing federal aid by taxing hospitals, shifting the resulting tax payments in and out of an uncompensated care fund, back to hospitals as adjustment payments, and diverting resulting federal Medicaid funds to state general revenue. He also proposed using taxes on nursing homes and pharmacies in his efforts to maximize and divert federal aid.

Romney's strategy attracted attention from the U.S. General Accounting Office, which:

Responded that “hospitals should benefit from increased federal reimbursements and Massachusetts’s arrangement appeared to result in lower payments to hospitals, despite increased claims for federal reimbursement.”

In a conversation with Salon, Hatcher said that these practices are not limited to Romney’s Massachusetts. However, while the Bush and Obama administrations attempted to crack down on this approach, Romney’s campaign promises to enable it:

Mitt will begin by returning states to their proper place in charge of regulating local insurance markets and caring for the poor, uninsured, and chronically ill. States will have both the incentive and the flexibility to experiment, learn from one another, and craft the approaches best suited to their own citizens.
*Block grant Medicaid and other payments to states
*Limit federal standards and requirements on both private insurance and Medicaid coverage

In the Globe piece, Hatcher concludes what the likely consequences will be:

Romney 2004 proposed cutting healthcare while simultaneously proposing illusory schemes to maximize and divert federal Medicaid funds. … Now Romney2012 is turning back to cuts, denouncing federal aid he once schemed to maximize and divert, condemning those who need government aid, and … now he proposes giving all the federal money from the Medicaid program to states without federal control.

Romney 2004 would have a field day with Romney 2012’s plan.

The Romney campaign did not respond to a request for comment.

Alex Halperin

Alex Halperin is news editor at Salon. You can follow him on Twitter @alexhalperin.

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Daniel Hatcher Health Care Massachusetts Mitt Romney Regulation