As government budgets become tighter, a war is brewing in Arizona over the state's use of Medicaid funds earmarked for safety-net hospitals.
State officials have no plans to alter the controversial system, which they say is a perfectly legal way to maximize federal funding.
At issue is how the state allocates Medicaid disproportionate-share funds that are allotted to Arizona's two county-owned hospitals, 481-bed Maricopa Integrated Health System in Phoenix and 114-bed Kino Community Hospital in Tucson.
The disproportionate-share funds come from a $112.8 million state pool, which includes a $73.3 million federal match of state and county contributions. Maricopa Integrated and Kino Community receive $46 million and $13.3 million, respectively, but the state withholds the same amount from their respective county owners through sales taxes.
The process, which also involves disproportionate-share payments to the other hospitals in Arizona, will net the state's general fund $75.6 million this year.
In a letter to Arizona Gov. Jane Hull and state legislators this month, Don Stapley, chairman of the Maricopa County Board of Supervisors, said the state has "laundered money" through the public hospitals.
Over the past decade, the federal government has criticized some states for abusing the disproportionate-share funds program by using federal funds to pad their coffers. The Bush administration has cracked down on various Medicaid matching schemes (March 11, p. 9). However, there is no evidence the federal government has taken issue with Arizona's system, in place since 1992. An official from the Centers for Medicare and Medicaid Services could not be reached for comment last week.
State officials argue the federal government allowed states to design novel financing mechanisms to boost the federal matching funds when it created the disproportionate-share funds program in the early '80s.
"The main purpose behind this system of shifting (funds) is to maximize the federal dollars coming in," said Francie Noyes, Hull's press secretary.
Maricopa Integrated's chief executive officer, Mark Hillard, argues that the system is no longer fair. His hospital posted a $45 million loss after providing $80 million in uncompensated care last year. "Some of our facilities are in dire need of replacement and there is growing need in the community for expanded healthcare services," Hillard said.