CMS Should Stop States from Abusing Intergovernmental Transfers in Medicaid
Source: Chris Medrano and Brian Blase. "Stop Another Medicaid Money-Laundering Scam Before It's Too Late." February 17, 2026. thefederalist.com
The Gist
States are gaming the Medicaid system by having government-owned hospitals and nursing homes send money to the state, which then sends it right back as inflated payments while claiming federal matching funds. This creates a money-laundering cycle that wastes taxpayer dollars and actually harms patient care, so federal regulators should stop it.
Conclusion
The Centers for Medicare and Medicaid Services (CMS) should take immediate action to stop states from abusing intergovernmental transfers (IGTs) to exploit federal Medicaid funding at the expense of patients and taxpayers
Premises
- States are using IGTs as money-laundering schemes to artificially inflate federal payments to government providers without real increases in state spending
- IGT schemes create massive funding disparities, with public providers receiving payments up to three times higher than private providers for identical services
- These schemes harm patient care quality, as evidenced by Indiana's nursing home conversions that led to worse outcomes and an estimated 50 additional deaths per year
- IGT abuse diverts funds away from actual patient care to unrelated uses like hospital construction projects
- CMS already has legal authority to stop these schemes under federal requirements that Medicaid payments be 'consistent with efficiency, economy and quality of care'
- Historical precedent shows that without intervention, these schemes will spread and cost hundreds of billions of dollars like provider tax schemes did
- The schemes prioritize maximizing federal dollars and political favoritism over delivering actual healthcare services
Assumptions
- Government-operated healthcare providers are not inherently more deserving of higher payments than private providers
- Payment parity for identical services would improve rather than harm overall healthcare access and quality
- CMS has both the legal authority and practical ability to enforce payment restrictions on state Medicaid programs
- States will continue to expand these schemes unless federal intervention occurs