May 22, 2008 8:39AM

WSJ: Medicaid Ripe for Welfare‐​Style Reforms

Medicaid is a large government program that provides medical care and nursing home services to millions of needy Americans. And probably to millions of non‐​needy Americans as well. Each state runs its own separate Medicaid program. About half the funding comes from the states and half comes from Congress — which means that neither really owns the program, and explains why Medicaid is rife with waste and fraud.

Earlier this week, a Wall Street Journal editorial explained how one variety of Medicaid fraud works:

The swindle works like this: A state overpays state‐​run health‐​care providers, such as county hospitals or nursing homes, for Medicaid benefits far in excess of its typical rates. Then the federal government reimburses the state for “half” of the inflated bills. Once the state bags the extra matching funds, the hospital is required to rebate the extra money it received at the scam’s outset. Cash thus makes a round trip from states to providers and back to the states – all to dupe Washington…

The right word for this is fraud. A corporation caught in this kind of self‐​dealing – faking payments to extract billions, then laundering the money – would be indicted. In fact, a new industry of contingency‐​fee consultants has sprung up to help states find and exploit the “ambiguities” in Medicaid’s regulatory wasteland.

The Journal argues that the only way to rid Medicaid of such fraud is to reform the program as Congress reformed welfare back in 1996:

A reform alternative would be for the government to distribute block grants, rather than a set fee for every Medicaid service. That would amputate Washington from state accounting and insulate taxpayers from these shakedowns. States would have an incentive to spend more responsibly, and also craft innovative policies without Beltway micromanagement. 

I’ve advocated block grants here, here, and here. Good to see the Journal grasps something that Republicans apparently cannot.