Vulnerability in the Social Services Shell Game


In many areas of government spending, Rhode Island voters and taxpayers are at a tremendous disadvantage in the (quote/unquote) public debate.  Consider G. Wayne Miller’s article in the Providence Journal concerning a reduction in the governor’s proposed budget for a particular type of social services spending that goes to hospitals:

Appearing before the House Finance Committee’s Subcommittee on Human Services, the officials argued that the loss of $15.7 million in Gov. Gina Raimondo’s proposed budget for Medicaid Disproportionate Share Hospital, or DSH, funding would hurt efforts to address “the challenges of the opioid crises” and “behavioral health issues,” among others, in the words of Teresa Paiva Weed, the president of the Hospital Association of Rhode Island. …

The hospital officials seemed to find an ally in subcommittee chairwoman Rep. Teresa Tanzi, D-South Kingstown, who delivered a blistering critique of the budget process that led to the proposed cut — and of the overall proposed $1.44-billion budget for the Executive Office of Health and Human Services, which administers state and federal funding to health-care organizations and some state departments.

Perhaps because the number, $15.7 million, appears nowhere in the governor’s budget, the article gives no context.  That “loss” represents a change from what amount to what amount?  Is it an absolute decrease or a reduction in expected growth?  Is that federal, state, or both?  Is federal policy pushing the change, or does the Raimondo administration have some other rationale?  If DSH is calculated according to a formula, is this actually a decrease in an appropriation or is it just a change in an estimate that may force the state to find money later, but won’t affect the amount ultimately given to hospitals?

None of that apparently matters.  The story fits in the “most vulnerable populations” template, so any reductions are handled as a moral question.  After a good while sifting through documents available online, an interested citizen would have to move on to playing journalist and calling the relevant offices for an explanation.

For the purpose of this post, the context of the DSH program itself is more relevant.  As a 2010 brief from the Rhode Island Senate’s fiscal office explains, Medicaid DSH has long been a tool for states to game a federal aid program for more revenue:

Starting in the late 1980s, several states realized that it would be possible to collect money from hospitals in the form of fees, taxes, or donations, and use those funds to draw down federal matching funds in order to make DSH payments without actually expending any state dollars. Rhode Island, for example, receives money from hospitals through the hospital license fee as general revenue. It then makes a DSH payment to hospitals using a portion of the license fee revenue as the state share, which is matched by the federal government. …

States expanded this strategy throughout the 1980s and 1990s, and began to use the DSH-generated funds for purposes other than uncompensated care, or even other than health care.

Senate fiscal mentions this dynamic while analyzing the governor’s current proposal, but only with reference to a $1 million increase in hospital licensing fees.  The House fiscal office provides some detailed numbers, although none that match the article.  House fiscal does, however, emphasize that the governor is just following projections of the state revenue estimating conference, which suggests that the aforementioned “loss” does not come from a change in policy.

Ultimately, the controversy appears to be a negotiation between the state’s hospitals (now represented by former Senate President Teresa Paiva Weed) and the state government as federal policies change.  That is certainly a necessary exercise, and one supposes it must be made more difficult by the need to keep the public from understanding the perverse incentives, monumental waste, and institutional fraud of welfare policy.

When it comes to that shell game, taxpayers have to be included among the vulnerable populations.