U.S. tells states it's taking half of money from tobacco lawsuits Proceeds will be used to provide health care to smokers under Medicaid


WASHINGTON -- The Clinton administration has told states that the federal government will take at least half of any money they recover through lawsuits against tobacco companies for the costs of providing health care to smokers under Medicaid.

Administration officials reason that the federal government contributes at least half of every Medicaid dollar spent by the states, so it should get at least half of every dollar recovered from the tobacco companies for the costs of treating tobacco-related illnesses of Medicaid recipients.

State officials angrily rejected the federal claims, saying the federal government had been of no help to them in their lawsuits.

'Governmental gold-digging'

Sen. Bob Graham of Florida, a former governor who agrees with the state officials, described the administration's claims as "governmental gold-digging."

Graham, a Democrat, added: "The federal government, having refused to join Florida's lawsuit, ought to keep its hands off the dollars that Florida secured in its tobacco settlement."

Tobacco companies agreed recently to pay Florida $11.3 billion over 25 years in settlement of its lawsuit, filed in 1995 by Gov. Lawton Chiles, a Democrat. He collected the first payment, for $750 million, in September.

In the last two weeks, the National Governors' Association and the National Conference of State Legislatures have taken positions similar to Graham's.

In an interview, Nebraska Gov. Ben Nelson, a Democrat, said the federal claim to money being recovered by the states was offensive.

"We are not some branch office of the federal government," Nelson said.

Wisconsin Gov. Tommy Thompson, a Republican, said, "We are absolutely, adamantly opposed" to the administration's effort to get some of the states' tobacco settlement money.

"The states took it upon themselves to bring these lawsuits," he said. "The federal government sat on the sidelines."

Sally K. Richardson, the federal Medicaid director, set forth the federal claim in recent letters to all state Medicaid directors.

Richardson said the federal government is entitled to its share of any money that states recover from tobacco companies for the costs of treating tobacco-related illnesses under Medicaid.

"Tobacco settlement recoveries must be treated like any other Medicaid recoveries," she said.

States must file quarterly statements of Medicaid spending and collections. Federal Medicaid payments to a state are then reduced by the federal share of such collections.

By the same logic, federal officials said, the federal government gets a share of any money that states recover when they detect overpayments because of billing errors or fraud by hospitals and other health care providers.

White House officials approved the policy described by Richardson. Chris Jennings, a White House aide, said last night: "We're not seeking a big confrontation with the states, but our lawyers don't see much leeway here. There's a law that requires us to do this. Our disagreement with the states may ultimately be resolved in the context of legislation on the tobacco issue."

Medicaid is financed jointly by the federal government and the states.

The federal government pays a larger share of Medicaid costs in states with low per-capita income: 77 percent in Mississippi and 73 percent in Arkansas, for example.

But the government pays 50 percent of the costs in higher-income states such as New York, New Jersey, Connecticut, Illinois and Massachusetts.

Under the administration's reasoning, the federal government would be entitled to a larger share of the Medicaid money recovered from tobacco companies in poorer states.

David McNally, director of financial services for the federal Medicaid program, said the Clinton administration's claim was consistent with long-standing federal policy on the financing of Medicaid.

'Extremely routine process'

"It's an extremely routine process," McNally said. "Any Medicaid-related recoveries have to be shared between the federal government and the states in the same ratio as the federal government and the states share Medicaid expenditures."

State officials said the multibillion-dollar tobacco settlements were far from routine.

They said it would be difficult to comply with the federal directive because the money they got from tobacco companies typically took the form of a lump sum, with no amounts specifically designated for the costs of Medicaid.

Graham and Rep. Michael Bilirakis, a Florida Republican, chairman of the Commerce Subcommittee on Health, introduced bills recently to prohibit the federal government from taking money recovered by states through tobacco lawsuits.

A bill introduced by Sen. Edward Kennedy, a Massachusetts Democrat, would allow states to keep the money claimed by the federal government if they used it to "to serve the needs of children."

States could spend the money on child care, Head Start, the education of disabled children, child nutrition or programs to provide health insurance and medical care for children.

Pub Date: 11/19/97

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