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The Poverty Industry

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I have a review of Daniel Hatcher’s The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens up at the Boston Review. Hatcher explores the utter outrage of how states and corporations combine to essentially steal public money that should go to foster children, nursing home residents, and other vulnerable people. It’s quite infuriating and I was happy to be able to write about it.

A leading corporate perpetrator of the poverty industry, in Hatcher’s telling, is MAXIMUS. Founded in 1975, the company works with governments around the globe as a private contractor for government aid programs. The company was found guilty of intentionally creating incorrect Medicaid claims while in a revenue maximization contract with the District of Columbia, and had to pay a $30 million federal fine in 2007. Yet its methods are so intensely profitable—for both states and itself—that it continues to win more state contracts. Hatcher uncovered MAXIMUS emails to Maryland officials in which it warned that the state was losing out by not pocketing more money intended for poor children; in the same email, it offered to help in that process.

Companies that arose in the military-industrial complex, including Northrup Grumman and Lockheed Martin, are now helping to create the poverty-industrial complex by going into this profitable revenue maximization business themselves. These companies make money if they can remove children from welfare rolls. A whistleblower lawsuit revealed that WellCare—a company that had already paid a $10 million fine for defrauding Florida’s Medicaid and Healthy Kids programs, and that has acknowledged illegal campaign finance contributions—held a celebratory dinner after removing 425 babies from state welfare rolls, lessening its financial responsibility and increasing corporate profits. WellCare had to pay a $137.5 million settlement to the Justice Department to settle that lawsuit.

As Hatcher explains, there are a number of ways for states to make money off of foster children. For example, the state can declare them disabled and therefore eligible for Social Security benefits. The state then names itself their trustees and gets to keep the money. Hatcher argues that the same is true for children receiving veterans’ benefits. For example, a guardian state can manufacture ways to increase the administrative costs of managing and dispersing benefits so that it can add those charges to the federal government’s tab. It may also seek to place children in its care with foster families rather than find a relative who can care for the child because it then profits from continuing to administer benefits for the child. It might put children in its care on prescription drugs to sedate their behavior so it can reduce staffing costs and charge for the medicines, even if their behavior can be managed without sedation. Tragically, states often treat vulnerable children in their care as cash machines.

Poverty contractors regularly act of their own accord even when the state has no vested interest, as with child support cases. Cases of unpaid child support arise overwhelmingly from dire poverty: most in arrears are destitute fathers who simply cannot afford to pay, and most claimants are destitute mothers who cannot afford to go without their payments. The Federal Office of Child Support Enforcement reports that over one-quarter of child support debt—$28.5 billion—is owed to the government. But states do not make a tremendous amount of money from child support via their entitlement to a portion of the money owed. That is because the cost of administering child support collection is often more than the amount the state saves from children who no longer need state support. Thus, it makes no financial sense for the state to pursue restitution. Although the amounts companies will collect per case are also small, the poverty companies, like debt collection companies, have a business model of relentlessly pursuing even tiny debts, so they prosecute delinquent fathers, absorbing much of the collected money.

Children are not the only victims of such schemes. States routinely use nursing homes as funding sources or opportunities for budget slashing. A popular strategy is to sedate relatively healthy elderly patients in order to reduce staffing costs. At one Connecticut nursing home, two-thirds of residents were found to be under the influence of antipsychotic drugs despite having no condition that warranted their use. An Indiana company, Health and Hospital Corporation, used revenue maximization strategy to take over formerly public nursing homes. Ten of the seventeen homes HHC purchased in 2003 fared worse on state report card scores by 2010, several of which were also on the federal government’s list of “most poorly performing homes.”

States also outsource probation services and court fine collections, juvenile detention centers, and hospice care—usually with similarly extortionary results.

Is it too early to start drinking?

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