Bush Targets State Medicaid Accounting Practice

If the Bush administration has its way, Congress will take steps this year to end an accounting practice in states that some say is tantamount to money laundering.

The accounting trick, used by California for instance, will yield the state $2 billion more in federal Medicaid money than it would otherwise receive, the Washington Post reported.

The trick goes something like this: cash-strapped California counties, public universities and government hospitals find $1.9 billion to send to the state capitol, under the guise of a local contribution to Medicaid. The money then comes back to the localities, but the state continues to show the funds on the balance sheet. Then the state asks for federal matching funds, not only to match the state's Medicaid costs, but to match those local donations as well, the Post reported.

The gimmick results in an increase of 9 percent in federal Medicaid match funds and better still, the federal government has been aware that the practice has been in use for more than a decade. The Bush administration is asking Congress to put the kybosh on it, predicting a savings of $20 billion in taxpayer dollars over the next five years, the Post reported.

"They're basically money-laundering,'' charged Jim Frogue, state project director of former House speaker Newt Gingrich's new Center for Health Transformation.

The debate over the practice has pitted Bush against the nation's governors and set the stage for the year's nastiest budget battle, with the Senate and House on opposing sides.

The administration began pressing the issue last week when the House and Senate budget chairmen met to work out a compromise budget resolution that singles out Medicaid for the largest reductions. State say the practice is key to ability to offer medical services to the indigent.