To fix ailing building, UMass taps Medicaid

When defective granite siding buckled on the exterior of the University of Massachusetts Memorial Medical Center in Worcester, state officials needed $55 million to fix the problem. They got it from an unlikely source: the federal Medicaid program.

Medicaid funds are intended to pay the medical expenses of low-income families. Increasingly, federal officials are scrutinizing what they consider inappropriate uses of the money by states. In this case, Massachusetts in 2001 tapped Medicaid funds to replace UMass Memorial Medical Center's weather-beaten facade with gleaming limestone.

State Medicaid officials defended the use of the money for the project.

''We no longer make payments like the one we are talking about," said Thomas Dehner, the state's deputy Medicaid director. ''But it was in compliance and appropriate at the time."

The work, which is just being completed, is nonetheless drawing criticism.

''It certainly doesn't conform to the spirit of the law the way I understand it. The money should be there for care," said state Senator Mark C. Montigny, a New Bedford Democrat who closely follows healthcare issues.

Montigny predicted the expenditure would attract the attention of some members of Congress.

''It's exactly what opponents of Medicaid use against us in Washington. It's what puts Medicaid funding in peril," he said.

State officials used a circuitous route to move the $55 million from a Medicaid account in the state's uncompensated care pool.

The Legislature in 2001 passed a budget amendment, which triggered $55 million in extra Medicaid payments to the UMass Memorial Medical Center. In turn, the medical center paid the $55 million to Worcester City Campus Corp., a nonprofit, university-controlled corporation overseeing the hospital construction work, according to public documents.

Such complex transactions, designed to maximize the flow of federal healthcare funds to states, have been the subject of criticism nationally by the US Government Accountability Office and the Office of Inspector General of the federal Department of Health and Human Services.

Generally, the accountability office considers such transactions ''inappropriate" and has found that they sometimes result in the diversion of money from healthcare. Federal officials declined to comment specifically on the UMass facade project.

''Federal Medicaid money is expressly intended to be used for patient care and services," said Roseanne Pawelec, a spokeswoman for the Boston regional office of the federal Centers for Medicare and Medicaid services, which oversees Medicaid.

State officials said the Centers for Medicare and Medicaid Services approved the transfer of money as part of a state Medicaid plan in 2001. The plan describes in technical language how hospitals can qualify for additional federal aid. But Pawelec said a review of the plan did not indicate it had anything to do with construction work.

The federal Office of Inspector General is currently preparing an audit report on Medicaid expenditures at UMass Memorial Medical Center, but it has not disclosed details. The hospital has said the audit focuses on 2004 and 2005 expenditures. UMass Memorial is one of three hospitals in Massachusetts that receive hundreds of millions of dollars in Medicaid supplemental money annually. The other two are the Cambridge Health Alliance and Boston Medical Center.

Two state government officials who once had oversight authority for the state's Medicaid expenditures now work at the UMass Medical campus in Worcester.

Wendy Warring, the former state Medicaid director in charge of the program when the $55 million for the UMass Memorial project was authorized, is now executive vice president at UMass Memorial Medical Center.

Warring said she and other state officials authorized the expenditure because it would remedy a ''critical life-safety facility issue" at the largest hospital providing Medicaid care in Central Massachusetts. Federal Medicaid officials were told how the money would be spent, she said.

''Certainly there is room to argue, as there always is, that different choices should have been made," Warring said, ''but the arrangement was legitimate, appropriate, and, in the end, fulfilled the purpose for which it was made."

Ronald Preston, who was regional Medicaid administrator in the Boston office of the US Department of Health and Human Services, in 2001, went to work as the state secretary of health and human services for Governor Mitt Romney. He left last year and was hired as a professor and administrator at the UMass Medical School.

The Globe reported in January that Preston, as the state secretary of human services, approved $115 million in extra Medicaid payments for UMass a year before taking a job at the medical school. He did not respond to a request for comment.

Mark Shelton, who represents the hospital and the medical school, said Preston and Warring were ''hired for the talents and expertise they bring to their jobs. They were eminently qualified for those jobs, and no one has ever suggested otherwise."

A Worcester state representative who was instrumental in winning the $55 million in funding, Democrat Vincent A. Pedone, defended the use of Medicaid funds for construction. He was a member of the House Ways and Means Committee in 2001,

''If this money was available from the federal government, we should do everything in our power to max out on our payments," Pedone said. Using it to replace faulty granite panels at a hospital was justified, he said.

''If you're going to deliver healthcare, you have to have a facility to do it in," he said.

Since 1998, the state has used about $125 million annually in extra federal Medicaid dollars to subsidize operations at UMass Memorial Medical Center.

In the case of the granite replacement project, disclosures relating to unrelated bond issues by Worcester City Campus Corp. generated a paper trail that shows how the Medicaid dollars came to be used specifically for a major construction project.

The original granite was installed on the building's exterior during its construction in the early 1970s, according to a 1999 engineering report commissioned by the hospital. The report said the stone was bowing, cracked, and fracturing at its anchors.

The general contractor was Vappi Construction Co. of Cambridge, which went bankrupt in the real-estate bust of the early 1990s. Vincent Vappi, the company's former president, said the state never told him the granite was defective.

Shelton, the spokesman for UMass Medical School and UMass Memorial Medical Center, a private, nonprofit corporation, said the stone was in danger of falling. The state investigated the possibility of making a claim against Vappi Construction, before discovering it had gone out of business, Shelton said.

''The only safe long-term solution was to replace" the granite, he said.

Christopher Rowland can be reached at crowland@globe.com.