11.9.07

WHEN THE SINGLE PAYER DOESN'T PAY. A cautionary tale for advocates of state-funded health care.
A loophole in the Illinois State Finance Act allows an unfair delay in state payments to health service providers and threatens the availability of health care for low-income families.
The consequence of the policy, which the State habitually engages in to appear more fiscally responsible, is to deprive the providers of cash flow and make them more reluctant to take on Medicaid cases.
Many DeKalb County Medicaid providers are forced to wait between three and six months to be reimbursed for health services provided to Medicaid patients. At the Ben Gordon Center in DeKalb, it takes about three months for their mental-health services to be reimbursed - at about one-third of their actual costs. For some primary-care providers, the wait is as long as six months.

A number of clinics in the state no longer take new Medicaid patients because they can't afford to wait for the money. The result is less access to health care for more than 2 million low-income children, parents, elderly and disabled.
It's not just the Medicaid reimbursements. The State is also slow to reimburse the clinics that serve Northern Illinois University employees.

It's all perfectly legal.
Section 25 of the State Finance Act dictates the state's fiscal year to be from July 1 to June 30. Expenditures for liabilities incurred within the fiscal year must be made from that year's budget, with - and here's the loophole - certain exceptions.
One such Section 25 exception is Medicaid liabilities. As a result, the state is allowed to make payments for Medicaid reimbursement in the fiscal year following the year of the cost, thereby using next year's dollars for this year's expenses. When Medicaid money runs out, it has become common practice to defer liabilities under Section 25.
In other words, if you don't have the money, just put off paying your bills - and make the health care providers the state's credit card.
Perhaps it's more accurate to say that Illinois is lapping its accounts receivable. (I do remember a few fiddles from accounting all those years ago.)
Lapping is a concealment technique where the subtraction of money from one customer is covered by applying the payment of a different customer. For example, a cashier may steal a payment from customer A and cover it by applying a payment from customer B to customer A’s account. Then, when customer C pays, that money is applied to customer B and so on. Smart crooks would never lap accounts receivable, but amateurs do not realize that this technique requires constant monitoring to avoid detection. Most lapping schemes don’t last long because of the continuous manual intervention required.
Unless, apparently, you're the State, and the law lets you steal the 2008 tax revenues to pay the 2007 Medicaid claims. The State is apparently not the only agency that's slow to pay.
The pharmaceutical industry is primarily a third party payment system. Pharmacies must therefore rely on the payment practices and creditworthiness of the payors and obligors to collect for services provided to customers by a third party payment plan. Although recent improvements in the claims processing system for the pharmaceutical industry, including the introduction of electronic, on-line adjudication (discussed in detail below), have added significant reliability to the payment system, the time lap between submission of a claim and receipt of payment has an adverse effect on pharmacies' cash flows. Moreover, pharmacies are relatively powerless in the claims/payment process in that, after having submitted the claim for adjudication, they can do little more than wait for their money.
Maybe there's a reason for that concentration in both drug manufacture and retail pharmacies.

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