Long overdue scrutiny of Medicaid is finally here. The Trump administration recently ordered states to audit their Medicaid providers to clamp down on fraud and abuse. Yet reports suggest most states aren’t even doing that basic level of vetting or oversight.
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Utah is a notable exception. A new state audit shows Medicaid concerns extend to how funds flow to even legitimate providers.
The Utah State Auditor report demonstrates how Medicaid funds can be diverted through opaque financing mechanisms that redirect taxpayer dollars away from patient care. The audit finds that more than half the funds intended to boost payments to certain providers for this care were instead retained by hospital-affiliated entities as administrative fees or other revenue.
At the core of the issue is Medicaid’s “Upper Payment Limit” (UPL) program, a widely used financing tool. UPL programs allow states to make supplemental federal payments to low-margin providers such as rural nursing homes, whose base Medicaid reimbursement often falls short of the cost of care.
These payments can rise to a federally defined ceiling — the upper payment limit — based on what Medicare would have paid for similar services. Because that gap is often substantial, these arrangements generate large pools of additional federal Medicaid dollars.
By closing the gap between Medicaid’s sometimes low reimbursement rates and the actual cost of care, the UPL program can preserve access and keep low-margin providers financially viable. Unfortunately, the structure and administration of these programs allow the hospital-affiliated intermediaries administering them to retain a significant share of the funds rather than pass them on to patients.
The audit shows that between 2016 and 2024, nearly $1 billion flowed through Utah’s Skilled Nursing Facility UPL program. Yet only about $450 million — less than half — actually reached nursing facilities for patient care. The remaining roughly $472 million was retained by hospital-affiliated entities.
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The audit indicates taxpayer funds intended for vulnerable patients aren’t reaching them. The program designed to support patient care seems to function more as a hospital revenue source.
“It is deeply concerning that over half the funds intended to support Medicaid patients in skilled nursing facilities didn’t reach the intended recipients,” said State Auditor Tina M. Cannon.
This mismanagement isn’t technically fraud. But it doesn’t matter to taxpayers whether their dollars are lost to fraud, waste or abuse. The result is the same. Valuable funds needed to support vulnerable populations are lost.
Utah is unlikely to be an outlier. UPL programs exist in various forms across the country, often with limited transparency into how funds are distributed and retained. That makes them particularly susceptible to the kind of “out of sight, out of mind” governance gaps that audits like this one exposed.
The recommendations from the Utah State Auditor include tightening oversight, improving transparency, ensuring funds are spent at the facility level and clarifying rules around administrative fees.
If policymakers are serious about protecting Medicaid, they need to look beyond eligibility and enrollment and examine how dollars move once they enter the system. The Trump administration’s Medicaid fraud detection effort alone won’t fix this problem. Real accountability means tracking dollars all the way to the nursing home floor.
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