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Profiting from Poverty

Dusty Sklar
September 11, 2016

Discussed in this essay: The Poverty Industry: The Exploitation of America's Most Vulnerable Citizens, by Daniel L. Hatcher. NYU Press, 2016, 288 pages.

UNLIKE SOME INDUSTRIES in America, the poverty industry is thriving. It's not a pretty story. The human service agencies of state and local governments, in collusion with private companies, are siphoning off billions in federal aid intended for poor families, abused children, disabled and elderly poor. If you assume that government aid to the poor will help to relieve their dismal circumstances, don't depend on it, says Daniel L. Hatcher, law professor at the University of Baltimore. His book, THE POVERTY INDUSTRY, exposes the venality of a startling number of public servants and private contractors who misdirect and misuse public funds intended to benefit those most in need.

Taking the foster care system as an example, Hatcher shows how some states enlist private consultants to devise ways to increase survivor and disability benefits claims for children in its care, and then use the higher payouts from the federal government for whatever the state decides is necessary, paying the private contractors a contingency fee. It's not widely known that this goes on. The growing private sector, anxious to profit from the available federal aid funds, has developed successful strategies for capturing these funds.

Maximus, founded in 1975, has as its slogan "Helping Government Serve the People." They now have more than 13,000 employees in the U.S., UK, Canada, Australia, and Saudi Arabia. Helping itself achieve profit has apparently been a compelling priority: In a 2007 lawsuit, Maximus settled for $30.5 million in a case brought by the U.S. Department of Justice alleging that the company aided Washington, D.C.'s Child and Family Services Agency in submitting false claims to the Medicaid program. There have been other scandals over the years, yet Maximus lives on: Months after the Medicaid case was settled, Maximus was awarded a contract with New York state to help prevent Medicaid fraud! — and a year after, Maximus won a contract with the Department of Justice to provide "investigative and analytical support, consulting, technical services, financial management, and case-related professional support during the investigation and prosecution of criminal cases"!!

THE PRIVATE SECTOR often handles entire government poverty programs. "Even huge military contractors," writes Hatcher, "have recognized the money that can be made from poverty-related programs.

In addition to building warfare machines, Northrop Grumman sets up state Medicaid eligibility systems, and helps states 'locate non-custodial parents, establish paternity and equitable orders, and collect, distribute and disburse child support payments.' Lockheed Martin . . . was chosen for a $120 million contract when the Social Security Administration needed help in making digital copies . . . . IBM and Xerox provide services to state Medicaid programs. . . . Carlyle Group and Bain Capital have bought up large national corporations that provide services regarding vulnerable populations.

Why is this happening? After the financial crisis of 2008, there was an increase of 26 percent for assistance with hunger; by 2013, it reached almost 60 percent. Census data in 2012 showed 33.1 million people living below the poverty line. (And apparently the need for foster care increases with poverty, which is likely to spawn neglected and maltreated children.)

"States have underfunded their human services agencies," says Hatcher, "and states themselves are also cash-strapped. Having faced years of poor fiscal climates and a political environment opposed to raising revenue through general taxation, states are desperate for other ways to raise revenue." Politicians have been reluctant to raise taxes, so states are forced to divert money intended for the poor, the disabled, the elderly, and children to their general budgets.

Texas, for instance -- many of whose politicians express antagonism towards federal aid -- from 2008 to 2013 used strategies to divert more than $1.7 billion in federal Medicaid matching funds to their general coffers. According to an article in the Houston Chronicle, "The practice discourages state hospitals from treating the poorest Texans." The University of Texas Medical Branch is cited as reducing "the number of uninsured patients it cared for . . . dropping from 3,182 in 2008 to 233 in 2011."

WHAT IS TO BE DONE about these distressing practices? First of all, says Hatcher, the public needs to be made aware of what's going on. He doesn't believe that the answer is to curtail funding, but to put a halt to misuse. After laying out suggestions for legislative reform, Hatcher concludes: "States and their human service agencies must lead the way, because they ultimately control the purpose of their partnership with private contractors. And in order for the partnership to realize its true potential to best serve our country's vulnerable populations, the agencies must first have the strength to embrace their own vulnerabilities -- because truth and strength lie in vulnerability."