Iowa wanted to funnel $1 billion in Medicaid money into private nursing homes. Why the feds said no.

The federal government has blocked Iowa’s attempts to implement a controversial, billion-dollar plan to funnel more Medicaid money into privately owned nursing homes.

As many as 410 Iowa nursing homes — some owned and operated by large, out-of-state corporations — would have benefited from the plan. Had it been approved, many would have seen their revenue from Medicaid doubled.

Industry officials have argued that Iowa’s nursing homes are in desperate need of additional Medicaid financing.

But in response to questions from federal officials about homes that would benefit from the plan, Iowa’s Department of Human Services said none of the facilities that would currently qualify for the additional money are in a “precarious financial condition.”

More: How privatized Medicaid is systematically denying hundreds of disabled Iowans the medical equipment their doctors say they need

The state's $4.8 billion Medicaid program provides services to 680,000 poor or disabled residents — more than a fifth of Iowa's population.

Because state law still requires Human Services to develop a plan that will route the additional money to Iowa’s nursing homes, the agency might have to come up with another option to achieve the same goal.

That would represent the state’s third attempt at securing federal approval for its so-called "supplemental payment" plan.

Iowa also has the option of asking the federal government to reconsider its decision. If the state chooses to do so, it must act by June 30.

The nursing home industry’s main lobbying organization, the Iowa Health Care Association, has told its members that the next step could involve new legislation next year that will "assist in pushing this forward.”

The funding proposal was formalized late in the 2016 legislative session when Iowa lawmakers approved without discussion or debate a plan that over five years would have provided 410 nursing homes with an estimated $1 billion of additional taxpayer money.

The law they passed was written entirely by industry lobbyists, according to Rep. Dave Heaton, the bill’s lead sponsor in the Iowa House. It enables county hospitals to hold the licenses of for-profit, independent nursing homes to create the appearance — on paper at least — that the homes are managed by the hospitals.

This hospital “affiliation” would qualify the nursing homes for higher Medicaid payments than they’re currently entitled to collect as independent operators.

Medicaid, which is paid for by both the state and federal government, would then begin making the higher payments to the nursing homes and hospitals, which in turn would kick back to the state its share of the new Medicaid money, while hanging onto the federal dollars they had collected.

In the end, the federal government would spend roughly $200 million per year “matching” a non-existent Iowa Medicaid investment in nursing homes.

Because the federal Centers for Medicare and Medicaid Services must approve plans of this type, CMS asked Human Services in late 2016 to explain how the new supplemental payment program would improve resident care in Iowa’s nursing homes.

In response, industry lobbyists crafted a new bill that lawmakers readily approved in early 2017. That bill required the state to submit a new, but nearly identical, proposal emphasizing the anticipated improvements in resident care that would result from the additional revenue.

As written, however, the legislation simply stated the new money would have to be spent on endowments; remodeling and renovation projects; computer technology; or quality of care.

In January, CMS again asked the state to justify the additional Medicaid spending. Human Services responded by pointing to the language in the law that restricts the use of the new money to quality of care and other endeavors.

On April 30, CMS rejected that response and noted that federal law has what amounts to a prohibition on kickbacks, restricting states’ ability to finance their Medicaid spending through “donations” from, or state taxes imposed on, the recipients of the new money.

Other states, however, have used similar tactics to draw down hundreds of millions of dollars in federal Medicaid money for nursing home operators.

Indiana’s nursing home industry, for example, has collected an additional $836 million per year from Medicaid through supplemental payments that trigger reimbursements to the state treasury but not to the federal government.