March 18, 2004

Medicaid: Intergovernmental Transfers Have Facilitated State Financing Schemes

For many years states have used varied financing schemes, sometimes involving IGTs, to inappropriately increase federal Medicaid matching payments. Some states, for example, receive federal matching funds on the basis of large Medicaid payments to certain providers, such as nursing homes operated by local governments, which greatly exceed established Medicaid rates. In reality, the large payments are often temporary, since states can require the local-government providers to return all or most of the money to the states. States can use these funds which essentially make a round-trip from the states to providers and back to the states at their own discretion.