The Money Laundering in Medicaid Makes Ozark Look Like Child’s Play
Just over a month ago, The Wall Street Journal published a piece on how Universal Health Services (UHS)—a massive hospital chain controlled by the Miller family—has quietly turned Medicaid into a billion-dollar cash cow. The Journal covered the story well enough, but as is often the case with legacy media, especially when writing about healthcare, further analysis is required. In this piece, I’ll dig into what these supplemental Medicaid payments actually are, how they work, who controls the purse strings, and how the whole thing amounts to one of the most audacious public-to-private wealth transfers you’ve never heard of.
What Are Supplemental Medicaid Payments?
First, some basics. Supplemental Medicaid payments are additional federal funds paid to healthcare providers above and beyond standard Medicaid reimbursements. These include Disproportionate Share Hospital (DSH) payments, Upper Payment Limit (UPL) payments, and State Directed Payments (SDPs).
The idea behind all of them is that Medicaid doesn’t pay enough to cover the real cost of care, particularly for hospitals treating a high number of low-income or uninsured patients. Fair enough, as we know from some of my past stories, there is some truth to this to be sure; especially as it relates to Medicaid. But the way these payments are actually awarded and routed makes that noble intention look more like a money laundering scheme straight out of the Netflix series, Ozark.
Who Controls These Payments?
The federal government provides funding for the payments, but state Medicaid agencies determine the allocation of those funds. That’s the key. States have substantial leeway to structure and disseminate these funds, meaning governors and state health departments are in control. The federal government then matches the spending.
This decentralized structure makes oversight scattershot at best, and fully mobbed-up at worst. It’s not hard to see how this has morphed from a gap-filler into a full-blown profit engine for certain players, especially politically connected hospital chains like UHS.
In 2024 alone, UHS pulled in over $1 billion from these programs. That accounted for a staggering 68% of its pretax income. There’s no variable expense tied to this money. No added labor. No construction. No capital investment. These are cash infusions that hit the P&L as pure profit.
So, how does one engineer that?
The Heart of the Scam
States impose so-called “provider taxes” on hospitals. Those taxes are then used to extract additional federal Medicaid matching funds (FMAP). Once the feds send their match, the state returns the original tax plus the federal kicker back to the hospitals in the form of supplemental payments.
Think of it like a forced loan that comes back with interest, using federal money as the multiplier. The hospital gives the state a dollar. The state sends it to DC. DC sends back a dollar and 68 cents (in the case of UHS). The state then gives the hospital its original dollar plus another 68%. Everyone wins—except the taxpayers, who have no idea this is happening.
The provider tax, in other words, is not a tax. It’s a pass-through mechanism—a way to turn one dollar into a buck sixty-eight with the help of a federal reimbursement loophole. It’s legal, predictable, and utterly detached from the actual delivery of care.
As Brian Blase (a former Trump adviser and current president of Paragon Health Institute) put it, this is “legalized money laundering.” And he's not exaggerating.
Are There Any Limits?
In theory? Yes. The federal government is supposed to monitor these arrangements and cap them to prevent excess. But in practice? It’s a free-for-all.
There are nominal limits on how large provider taxes can be relative to total provider revenue, and CMS requires that payments not exceed what Medicare would pay for the same services. But enforcement is flimsy, waivers are routine, and loopholes abound. MACPAC, the nonpartisan congressional advisory group on Medicaid, has noted that states routinely set Medicaid payment rates for supplemental programs at or above commercial rates.
Think about that one. Commercial plans often pay 250% of Medicare for hospital services. Is that warranted? Absolutely not. How do I know this? Because nationally, we get 95% of hospitals to accept 140% to 160% of Medicare when we install reference-based pricing plans. Alternatively, we know that commercial plans pay two times what they should for hospital care. And now, after we strip away all of the budget gimmicks and platitudes about caring for the poor, hospitals can make that much or more in the Medicaid laundering scheme.
There is no hard ceiling. No unified cap. And no consistent federal audit process to verify whether these payments reflect actual costs.
A House Built on Federal Flow
UHS knows precisely what it’s doing. And so do the analysts who cover it. Projected earnings are based not on medical innovation or surgical volume, but on the continued flow of these Medicaid “tributes.”
And yet, the political risk does appear to be growing. Congressional Republicans, emboldened by budget-cutting mandates, are sniffing around this one. With Medicaid now consuming over $618 billion annually—about 9% of the entire federal budget—the pressure is on to cut. And when you find a hospital chain collecting more in Medicaid "supplements" than it earns from Medicare or even commercial plans, the optics speak for themselves.
Some members of Congress want to cap these payments, and others want to eliminate the provider tax scheme altogether. But the fiscally prudent are so massively outnumbered in D.C. that I don’t see any real reform to the scam.
Like many of its peers, the UHS empire is based on one big assumption: that nobody will touch the golden pipeline.
The numbers are too big. The margins are too absurd. And the politics too tempting.
This isn’t solely an issue of Medicaid integrity. It’s a more profound indictment of how healthcare finance now works in this country, where government reimbursement policy is a revenue stream for the largest corporations and most politically connected bureaucrats and legislators.
UHS doesn’t need to deliver better care, build better hospitals, or serve more patients to hit its targets. It just needs the taxpayer-funded gravy train to stay on schedule.