The Poverty Industry, Part One: The Iron Triangle

September 28, 2016 by Robert Franklin, Esq, Member, National Board of Directors, National Parents Organization

As promised, here’s my review of The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens, by University of Baltimore law professor, Daniel Hatcher. The book is important enough – and important enough to the children of the poor – that my next three posts will be on it.

Hatcher’s thesis is simple: our federal government combines with state governments and private industry to steal money and benefits from the poor, many of whom are children. They do that by establishing programs whose purpose is to help the poor and then channeling funding for those programs to other ends. Much, though not all, of that behavior flagrantly violates legal and regulatory requirements.

Hatcher deals with three major aspects of the poverty industry, children’s welfare/foster care, child support and Medicaid. Because it doesn’t directly relate to the mission of the National Parent’s Organization, my posts won’t deal much with the Medicaid issue.

Hatcher posits an “Iron Triangle” of the poverty industry. The triangle consists of the federal government, state (and sometimes local) governments and private contractors. The federal government establishes and funds programs to assist the poor and, via what’s come to be called “fiscal federalism,” provides funding to states to implement those programs. Depending on the program, states have certain discretion about how to carry out the purpose of the federal program. Obviously, Washington places restrictions on how the money can and can’t be used, but, within those strictures, states have a certain leeway. The availability of vast sums of federal money provides an incentive to states to try to maximize their take, so they contract with private industry to maximize the revenue flow from Uncle Sam.

Now, on its face, there’s nothing wrong with any of the above. Washington wants to help the poor and Congress funds programs to do so. State’s want to help the poor, so they accept the money from Washington. And who can argue with hiring private companies to increase the flow of money to programs for the poor? After all, the more money states have to implement those programs, the better off are the poor in those states, right?

Well, not quite. In fact, access to those revenue streams has become an end in itself for states. They’ve found it expedient to take the money and often not use it for its intended purpose, i.e. relief for the poor. All too often, it goes into the state’s general revenue coffers and is used for anything the state so desires. Meanwhile, the private entities hired by the states to maximize the flow of revenue from Washington don’t much care what the money is used for or how it’s “maximized.”

For example, one revenue maximization company, WellCare, settled a federal whistleblower lawsuit under the False Claims Act for $137.5 million. The suit claimed, among other things, that the company had successfully made Medicaid claims for 425 neonatal babies it had disenrolled from the program. The company gave a celebratory dinner for the team that accomplished the feat.

Many states have cut taxes on residents and therefore find themselves in a bind for funds. Federal money often looks like the answer to their self-imposed fiscal woes. They therefore accept funds meant by Washington to be used for the poor and simply deposit them in the state’s general revenue. The problem was noticed as long as twenty years ago and the General Accounting Office has raised the alarm. In 2005, a GAO audit of states’ use of Medicaid funds stated flatly “There is no assurance that these increased federal reimbursements are used for Medicaid services.” At least one audited state had simply “deposited the funds into state general funds.”

Of course this all raises the issue of who’s auditing the use of the funds. After all, surely the federal government wants its money used for the stated purpose. Amazingly, in some cases, the very private contractors used to maximize the flow of money to states end up auditing themselves. Hatcher states that, “some companies have competing interests, including being hired to audit the work of subsidiaries, business partners, or parent or sister companies.”

Obviously, this diversion of funds conflicts with the very purpose Washington intended. When the federal government provides additional funding to states to improve medical services for the poor, but states place it into their general revenue accounts, it’s not used for its intended purpose, but for something else. Meanwhile, medical care for the poor remains the same, contrary to the desires of the U.S. Congress that made the money available in the first place. The same is true for funding to improve foster services and child support. Like the poor generally, those kids find their needs given short shrift because state legislatures wanted to cut taxes.

A fair amount of this is either illegal outright or arguably so. Under the revenue maximization scheme, false claims abound. Hatcher cites case after case of companies manufacturing claims and then collecting on them. Yet another probably illegal practice is that of paying revenue maximization companies on a contingent fee basis, i.e. as a percentage of the federal money brought in by them. The Medicaid program almost certainly makes the practice illegal, but it goes on anyway. And why not? Companies seem to simply see the fines they pay for violations of federal regulations to be simply a cost of doing business rather than an encouragement to abide by the law.

Hatcher notes that WellCare, having paid $137.5 million to settle claims against it under the False Claims Act, “barely skipped a beat.” Immediately thereafter, it “won a contract from the federal government to continue providing Medicare Part D prescription drug plans in all fifty states plus the District of Columbia.”

In short, under the current system, it’s hard for revenue maximization companies to lose. The pot of money to be divided up is huge, there’s little oversight of how revenue is maximized or where it goes once a state receives it and few consequences for legal wrongdoing. If you’re a for-profit company, what’s not to like? That probably explains whey companies as diverse as WellCare, Lockheed Martin and Northrop Grumman have gotten into the game.

Who’s not in the game? The poor, that’s who, including children. They’re all but entirely unaware of what’s being done in their names and, even if they did know, the deck is so stacked against them that it probably wouldn’t matter. Next time I’ll discuss how this all plays out regarding those who are truly our most vulnerable citizens – kids in foster care.




National Parents Organization is a Shared Parenting Organization

National Parents Organization is a non-profit that educates the public, families, educators, and legislators about the importance of shared parenting and how it can reduce conflict in children, parents, and extended families. Along with Shared Parenting we advocate for fair Child Support and Alimony Legislation. Want to get involved?  Here’s how:

Together, we can drive home the family, child development, social and national benefits of shared parenting, and fair child support and alimony. Thank you for your activism.

#poverty, #childpoverty, #Medicaid, #FalseClaimsAct, #DanielHatcher

Leave a Reply

Your email address will not be published. Required fields are marked *