Joining me now is a guy who I gotta tell you. I'm sure that when Nicholas Kleinworth was a small wee child, he said, Mom, Dad, my dream is to work on healthcare policy for the Paragon Institute. And yet here he is doing just that. And now, welcome to the show, Nicholas. I hope you understand I'm having some fun with you.
Yes, thank you Mandy for having me. It's great to be on.
Well, Nicholas just helped write a paper for the Paragon Health Institute. They work on government health policy and things of that nature. I just hit that by accent, sorry, Shannah. And they've got a new paper out called addressing Medicaid money Laundering, the lack of integrity with Medicaid financing, and the need for ref Those are pretty strong words, Nicholas, to call Medicaid money money laundering, Why did you choose to use that?
Well, actually, money laundering wasn't a term that was coined by US. It is actually first used by the Wall Street Journal some years back to describe this same process of how hospitals and providers alike are paying into the system only to get that money back and take money from the federal Coffers.
So explain to my listeners how Medicaid dollars flow to the state and dumb it down because this is super complex, which is part of the problem. And let's talk about how that money flow works.
First of all, right, well, it's complex by design. It makes it really hard for people to figure out what is exactly going on. Basically, all you need to know about medicaid is it is a federal state partnership, So the federal government helps the state administer this program. The federal government will provide say, sixty percent of the cost, and then the state's supposed to provide that other forty percent. But states are cheating the federal government in this way.
So they're taxing healthcare providers. They put a tax on your doctor or your hospital, and they promise them that they'll get their money back. So they take that money and then they raise payments to those providers so they get all that money back. And because those payments are additional spending in Medicaid, the federal government then matches sixty
percent of that higher spending. Now, so now the state was able to create billions of dollars out of thin air, keep the providers happy and expand the Medicaid program.
So what's the problem with that, Nicholas.
So there are a few problems with it.
The first thing is that the states are getting rid of their incentive to control costs within the program. So if you're getting money out of thin air, why would you want to be frugal with the dollars make sure they're actually going to improving people's health.
And so we see that on the Medicaid program. How it's actually a very low value.
Program and people aren't getting out of what the government's putting into it. Secondly, unlike Colorado, Colorado is one of the exceptions, but in other states, some of these payments go all the way up to average commercial rates for these services. And what that does is if you, as a doctor, knew you were going to get a guaranteed payment from the government and it's up to your average
commercial rate, you're incentivized to raise that rate. So it actually raises the cost of health care for all Americans, not just the Medicaid people.
No, it is my understanding, and I've had this experience in Florida many years ago. I was trying to help someone on Medicaid find a specialist, a very specific kind of specialist and they were unable to get this specialist. And these are people living in poverty and they needed a specialist for their child. And I was told by someone at the Medicaid office that because reimbursements are so low, that none of the specialists for that particular specialty would
take Medicaid on a regular basis. So we did jump through all these soups to get somebody to take her, you know, as a specific case. So what you're telling me is that that is not accurate in all the other states, that many of them are approaching average market rates.
That's correct, and in a lot of states.
So it's true that the Medicaid airyimbursement rate standard the base rate is below what you would consider as like a normal market rate or the average commercial rate for that Well, what states do to raise the spending and give extra money to these providers. They provide what's called supplemental payments to these providers, and that gets them to that threshold.
What is the solution for this? Because what's happening now, and let me see if I can break this down correctly. States are incentivized to increase payments to doctors at the same time doctors are paying a provider fee or tax back to the state with the understanding they're going to get it back, and then Medicaid builds the government at a much higher level, relieving the state of much of
their responsibility when it comes to medicate. So that's the game, right right, right, Okay, so how do we fix it?
So all we're proposing at Paragon, and it actually really should be a pretty low bar mandy, because all we're proposing, even Barack Obama believed or not proposed, that we lower what's called the safe harbor threshold, which is how much the states are.
Allowed to.
Give back to providers in a hold harmless type of agreement. So what I just described where they pay the tax and then they get that money right back. Right now, they can charge up to six percent of the of the profits made by the hospital or that provider. So we're proposing that you lower that to at least three point five percent.
That's what Obama wanted to do, and I would.
Hope that Republicans would at least be as conservative as Barack Obama on this issue.
What about block grants?
Block grants are actually are number one recommendation or this It's hard to see that we would actually get to block grants and medicaid this year with all the with what we're seeing in Congress right now, But that would be ideal because what's happening in medicaid is that open ended reimbursement. If the states spend more the government, the federal government ends up reimbursing more, and so that incentivizes
the program to have a round away costs. So a block reant would actually incentivize states to be a lot more efficient with the program and would address a lot of these issues.
Is that feasible to do? I mean, could you look at what a five year look back and figure out what each state's block would be? Would they all be the same because states with higher poverty, of course, would need a bigger Have you guys worked out the details on that.
Every state would be a little bit different. There are different dynamics at play in the states, and when when you're trying to decide something like that, I would say that the main thing that we need to do is that the current f map situation, or the federal matching situation, is that the state it's supposed to be correlated with the wealth of the state inversely correlated. So the less wealthy of the state is the more the federal government
with kit can. But right now we're actually seeing just the opposite. More wealthy states are getting more federal money per person per enroll Lee.
I should I should make sure to specify that.
So what we would want to do with the block grant system is actually kind of make medicaid the way it was always supposed to be, which is the poorer states they are actually getting more help.
Nicholas Kleinworth, It's a fascinating, fascinating article. I hope everybody goes to read it because we're now having a quote medicaid crisis here in Colorado because our legislature is overspent over the last few years and now they're having to try and.
Figure it out.
So I'd love to be offered. I'd love to be able to offer solutions that don't just involve more money from the government, because that money from the government, that's my money, and I'm quite cheap. Nicholas, I appreciate your time today very much.
Yes, thank you for having me. It's a great conversation.
All right, thank you. That's Nicholas Kleinworth from the Paragon Institute