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

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. Part I of this Article sets out the structure of the Medicaid program and describes states’ use of revenue maximization contractors to assist in their Medicaid revenue strategies. Part II describes details of the numerous revenue strategies states have developed to claim increased federal Medicaid funds through illusory means and how the funds are then diverted to state revenue. In Part III, the Article describes how the revenue practices conflict with the statutory purpose of the Medicaid program. The Article concludes with suggestions to curb the illusory revenue strategies and to better ensure that Medicaid funds truly assist the vulnerable populations in need of such services