WASHINGTON -- When Maryland tried to boost its federal Medicaid funds by millions of dollars through a doctors' "tax," the Bush administration cried foul, calling it a "sleight of hand" trick.
Yesterday, the administration had a different term for it: OK.
Gov. William Donald Schaefer was told by a top administration budget official that the so-called doctors' tax was legal and that, therefore, the state would be receiving some $30 million in January that had been withheld by the federal government.
While the governor's aides were ecstatic, the governor himself was more cautious of favorable budget news from Washington.
"They said it was legal," Mr. Schaefer said. "But I have my doubts until they write the check."
The federal turnaround came as Mr. Schaefer and a dozen governors met with Bush administration officials about health-care policy. Thegovernor questioned Thomas A. Scully, associate director of the Office of Management and Budget, about the state's tax on doctors' fees under Medicaid, the federal-state program which provides health care to the poor, blind and disabled.
"The governor said, 'You may not like what I'm doing, but it's legal,' " said state Health Secretary Nelson J. Sabatini, who wrote the plan.
"Maryland's plan will be approved," Mr. Scully said, according to Schaefer aides. Mr. Scully did not return phone calls.
Mr. Sabatini said the tax was built into the state's Medicaid budget and would not mean additional money for the cash-strapped state.
The tax on doctors' fees is expected to bring in some $55 million each year, he said. The estimated $30 million withheld by the federal government is from July 1, when the program went into effect.
"This is obviously a significant breakthrough," said Michael J. Werner, a senior legislative analyst in the state's Washington office. "We've been battling with them for quite some time."
Mr. Sabatini said that the loss of the federal money from the Medicaid program would have "devastated" the state's Medicaid program which ballooned with the recession.
Some 427,000 Maryland residents -- about 10 percent of the state's population -- are under the Medicaid program, said Mr. Werner, noting officials last year estimated the program would serve 375,000.
"The economy has gotten even worse than anticipated," he said, adding that the program is in the red for $150 million next year.
Medicaid covers general hospital and physician services as well as prenatal and child care and long-term care for people who are elderly or disabled. In Maryland, it also covers kidney dialysis.
Under Maryland's "tax" plan, doctors' fees could be doubled, with doctors getting none of the additional money. Since the federal government covers half of the fees, increasing them would raise the federal reimbursement.
Even though some in the Schaefer administration sarcastically called the plan "The Scam" and "Fool the Feds," the state attorney general's office said it was legal.
Nearly 30 other states had requested some $3.8 billion in federal funds this year to match donations and taxes -- up from eight in mid-1990. The Department of Health and Human Services recently devised regulations, slated to go into effect in January, that would curb states' receiving Medicaid funds beyond their intended share.
Gail R. Wilensky, administrator of the Health Care Financing Administration, which oversees Medicaid, has said Maryland was one of the "most egregious examples." Ms. Wilensky was not available for comment yesterday, and her press aides were unware of Mr. Scully's comments.
But Mr. Werner said the regulations bar taxes on hospitals, nursing homes and similar facilities, not on physicians.
"That's why we're not covered by the regulations," he said. "That's why we claim it's legal. I think [the federal government] created the whole thing to take our money away."