Biden Health Officials Targeted Red States with Medicaid Program Audits

Biden-administration health officials targeted Republican-led states for audits last year over how they police their Medicaid programs, even though medical providers in several blue states, including California, seemingly operate their programs similarly, emails and records show.

The Centers for Medicare & Medicaid Services, or CMS, targeted three red states — Florida, Texas, and Missouri — for audits and enforcement last year as part of an effort to crack down on what they now contend is an improper use of Medicaid dollars, according to emails obtained by Government Accountability & Oversight, a Wyoming nonprofit and government watchdog.

The nonprofit’s leaders argue that the nearly 3,000 pages of emails and records they’ve obtained reveal a strong case that Biden’s CMS politically targeted red states with audits, with a primary focus on Florida. The emails show that CMS officials ramped up their efforts to target that state at the same time that its governor, Ron DeSantis, looked as if he could be a serious challenger to President Joe Biden in 2024.

In the emails from early 2023, which the nonprofit has posted online, CMS leaders said that they were operating on a “tight timeline” and that Florida is “the only [state] we have concern on,” even though the agency was “aware that other states have similar hospital arrangements.”

But while CMS’s enforcement actions against Florida coincided with DeSantis’s rising profile as a presidential contender, the emails don’t contain any explicit political intentions.

CMS’s audits in Florida and Texas remain incomplete, and those states have held up CMS’s efforts in court. If it was politically motivated, the Biden administration’s move to crack down on Florida nevertheless received little notice from the media and does not appear to have affected the governor’s diminished political trajectory. The DeSantis campaign has not made any mention of the issue.

Still, Chris Horner, an attorney for the nonprofit watchdog, said that the body of emails his organization obtained “just screams weaponization” of the federal government.

“CMS targeted Florida at the same time Govern DeSantis’s candidacy to be the Republican presidential nominee was ascendant and the media was reporting that ‘the prospect of facing upstart Florida Republican Gov. Ron DeSantis is prompting whispers of angst within Democratic circles,’” Horner said in an email to National Review.

He added that the effort by CMS “sprang out of nowhere,” and the emails that the nonprofit obtained “indicate it was part of a politicization/weaponization of Medicaid funding against a trio of states who have been the bane of the administration.”

CMS did not respond to requests for comment from National Review made through its agency website and on the phone.

“For the past three years the Biden Administration has targeted Florida at every opportunity, and these emails make it abundantly clear – they are afraid of Governor DeSantis,” Jason Weida, Florida’s Agency for Health Care Administration secretary, said in an email. “Auditing our rule changes is only the tip of the iceberg.”

“We have seen CMS intentionally craft FAQs, send letters, and make rule clarifications that intentionally target how Florida runs its fiscally conservative programs. The constant federal interference creates a chilling effect that is designed to prevent other states from following Florida’s lead,” Weida added.

Government Accountability & Oversight was founded in 2018 and supports litigation to fight for government transparency, according to its website. Its leaders are lawyers, good-government advocates, and conservative radio hosts.

The questions involving the state Medicaid programs center on the way that most states fund their programs to draw federal matching dollars, and on how medical providers utilize the money. Under Medicaid, a joint state-federal health program for the poor, the federal government matches state dollars. One method that every state but Alaska uses to fund Medicaid is through taxes on providers — hospitals, nursing homes, and other health-care facilities.

“This is a very efficient way to pay for Medicaid, because it’s not a tax burden on the general public,” said Don Gilbert, a Texas-based health-care consultant and that state’s former health commissioner. “It’s a very isolated, I think elegant way of addressing a finance need that is not addressed by state funding.”

Provider taxes to fund Medicaid are authorized under federal law, but there are rules. One is that state governments cannot ensure taxpayers, in this case the medical providers, that their taxes will be returned through what is known as a “hold harmless” agreement.

So, to make the program work for medical providers, which are taxed uniformly but see Medicaid patients at different rates, providers in several states — including Florida, Texas, Missouri, and California — have made private mitigation arrangements to pool and redistribute their Medicaid dollars among themselves. The arrangements often are not public.

CMS argues that these private agreements, even though they aren’t agreed to or policed by the states, are akin to illegal hold-harmless arrangements. State health officials and health-care industry leaders disagree and have pushed back on CMS’s new interpretation.

Justin Senior, chief executive officer of the Safety Net Hospital Alliance in Florida, said that the private arrangements are vital to hospitals and other health-care providers, particularly providers who don’t see many Medicaid patients but pay a lot in Medicaid taxes. Without the private arrangements, he said, “the industry would fracture.”

CMS previously tried to enforce its interpretation of the provision in 2019 as part of its Medicaid Fiscal Accountability Regulation, or MFAR, a complex series of proposed technical changes purportedly aimed at strengthening Medicaid’s fiscal integrity and increasing transparency in the program’s financing. It ran into bipartisan opposition.

The states and the health-care industry balked, claiming that MFAR would gut their Medicaid programs. Biden and then-Senator Kamala Harris both opposed MFAR. Eventually the Trump administration directed CMS to abandon the proposed rule.

But according to CMS emails obtained by Government Accountability & Oversight, the agency renewed its efforts, in the fall of 2022, to crack down on select states where it suspected that hold-harmless provider agreements existed, with a specific focus on Florida.

That September, CMS notified Florida health-care leaders about concerns that portions of Florida’s Medicaid program “may not comply with certain health care-related tax requirements.” CMS notified Florida that it was subject to a “focused review,” or audit.

In mid-November, a little more than a week after DeSantis’s landslide reelection victory, CMS officials sent emails to the Office of Inspector General, or OIG, about their concerns with Florida’s and Texas’s Medicaid financing arrangements.

CMS decided to issue an informational bulletin laying out its concerns about private hold-harmless agreements, with one agency official writing in an email in early January that “I understand we are on a somewhat tight deadline.” The bulletin was scheduled for release in mid-February, coinciding with planned regulatory audits in Florida and Missouri. The OIG was expected to look into Texas’s program.

In one highly-redacted email from early February, a White House staffer wrote that “it’s possible that start talking more about this stuff the week after SOTU,” referring to Biden’s State of the Union Address on February 7. In the days before the bulletin’s planned release on February 17, and before the agency’s regulatory actions were to commence, a CMS senior adviser said in an email that CMS was taking action in Florida even though the agency “is aware that other states have similar hospital tax arrangements.” Another staffer wrote that Florida is “the only one we have a concern on from [the Office of the Administrator],” a presidential political appointee within CMS.

Government Accountability & Oversight leaders note that CMS’s efforts occurred while DeSantis’s political star was rising, while Democratic political operatives were increasingly troubled about the Florida governor’s popularity with key constituencies, and while both Biden and Harris were taking swipes at Republican policies in Florida. About a week before the CMS bulletin was released, Biden spoke in Tampa and attacked DeSantis and Florida Republicans over their handling of entitlement programs, including Medicaid.

Government Accountability & Oversight leaders contend that if CMS’s policies, as laid out in its bulletin, were put into practice, it would lead to massive cuts to the Republican-led states’ Medicaid programs, and hurt their Medicaid patients.

They suggest that CMS’s decision to audit only red states smacks of politics. They noted that CMS intended to finish its Florida review and release a final report by the end of 2023, which was just before the Iowa caucuses.

“CMS has expressed no problem with these same practices in blue states,” Horner, the GAO attorney, said in an email, adding that CMS seemingly has turned a blind eye to similar provider tax arrangements that have existed in California for over a decade. The agency recently approved a massive investment in the state’s Medicaid program.

Other Democrat-led states previously raised concerns about the 2019 MFAR proposal.

Last May, CMS released a proposed rule that would codify its interpretation of the hold-harmless provision in the Federal Register.

Gilbert, the Texas health-care consultant, said he believes that CMS’s proposed rule conflicts with federal statutes. He said it’s not clear if CMS is targeting Republican-led states, but “when you have uneven application of policy and regulatory enforcement, which is the case on this issue of provider taxes, it gives rise to speculation about why are they doing what they’re doing? Is this aimed at a certain state or states or block of states?”

“You can’t have rules that apply to everybody, but only get selectively enforced,” Gilbert said. “It’s the inconsistency that gives rise to speculation about what the agenda is.”

So far, CMS’s efforts to crack down on Florida, Texas, and Missouri have been held up by legal challenges. Texas sued the agency in April, alleging that, “for the second time in three years,” CMS has “wielded its oversight role as a cudgel to force Texas to adopt its policy preferences. In the process, it has shaken the structural foundation of Medicaid’s operation in Texas.”

In the lawsuit, Texas argues that the Social Security Act is clear that arrangements between private providers to protect against financial loss “do not fall within the ambit of a prohibited hold harmless provision,” and that CMS, through its February bulletin, has reinterpreted the hold-harmless provision without going through the proper rule-making process.

Announcing the lawsuit, Texas attorney general Ken Paxton said the state was “fighting back” against “yet another disastrous, illegal federal policy from the Biden Administration.”

In June, a federal court granted Texas a preliminary injunction in the case, prohibiting CMS from enforcing the policy laid out in its bulletin in the state.

Florida filed its own lawsuit against CMS in August, similarly arguing that the agency’s new interpretation of the hold-harmless provision is invalid and unlawful. The lawsuit also said that Florida’s Agency for Health Care Administration “lacks the personnel to police private agreements—potentially secret or unwritten agreements — among hundreds of private hospitals around the State.”