Medicaid Intergovernmental Transfers: Addressing Abuse and Ensuring Fiscal Integrity

States use intergovernmental transfers (IGTs) as a Medicaid financing mechanism, in which local governments transfer funds to the state to help pay the state's share of Medicaid costs.

While originally legitimate, IGTs have increasingly been abused for inflating federal Medicaid payments without real state or local contributions, often benefiting public providers disproportionately. The federal Medicaid program matches state spending with a Federal Medical Assistance Percentage (FMAP), incentivizing states to maximize federal funds. IGTs combined with supplemental payments enable states to recycle funds, creating large federal matching payments that primarily benefit public providers, thus distorting the Medicaid financing system. Upper Payment Limits (UPLs) theoretically cap payments to providers, but states often exploit these limits by paying high rates to government-owned providers while keeping other rates low, staying within aggregate limits. Legislative actions in the early 2000s attempted to curb these abuses, but instances continue, such as California's Ground Emergency Medical Transportation (GEMT) program, which pays public ambulances significantly more than private ones for similar services. Recent budget reconciliation acts tightened provider tax and supplemental payment rules but did not adequately address IGT-related abuses, leaving a loophole states may increasingly exploit. CMS has the authority to deny state plan amendments (SPAs) that fail to meet statutory standards of efficiency, economy, and quality of care, as upheld in court cases like Minnesota v. CMS and Christ the King Manor, reinforcing the need for rigorous federal oversight. The article suggests structural reforms like block grants or capped allotments as potential long-term fixes, but calls for immediate federal and state policy action to close IGT loopholes, ensure fair provider payment, and maintain Medicaid's fiscal integrity. The overall concern is that without reform, states will continue to game Medicaid funding to benefit politically connected public providers, undermining provider equity and federal-state partnership.Given this context, California's GEMT program exemplifies payment disparities and the challenges in regulating IGT-related Medicaid financing, which requires prompt attention to ensure equitable and sustainable Medicaid funding.