The hospital lobby is out in force urging states to expand their Medicaid programs. Their faulty claims are spurring Republicans governors to embrace the giant expansion of the broken, costly Medicaid program. This week, Governor Kasich of Ohio and Governor Snyder of Michigan became the fifth and sixth Republican governors to announce their desires to further embrace consolidated federal health care through the expansion. But why would hospitals who are focused on delivering high-quality health care to their patients embrace such a bad idea? The answer: Protecting their bottom-line.

The controversy revolves around a complicated provision of federal health care law known as disproportionate share (DSH). The federal government requires hospitals to treat all emergent health care conditions regardless of the patient’s ability to pay. Congress realized this mandate imposed costs on hospitals and decided to reimburse hospitals that treat a large share of uncompensated care cases. These hospitals tend to be in very rural or very urban areas of the country where more individuals are uninsured.

These DSH payments are sent to hospitals through the normal Medicaid payment process; the hospitals receive a higher reimbursement than their counterparts. In 2012, Medicaid DSH payments totaled $11.3 billion.

Under the President’s health care law, Medicaid would be expanded to include all individuals under 138% of the federal poverty level, dramatically reducing the incidence of uncompensated care. So, the hospitals didn’t object during the health care law’s debate when Congress included DSH cuts that totaled $14 billion from 2014 to 2020.

After the Supreme Court’s June 2012 ruling, the situation changed because the Court held that states could not be forced to expand Medicaid—the expansion will be voluntary.

Hospitals are scrambling. Without the Medicaid expansion and with cuts to DSH payments, hospitals will have less money to treat the uncompensated care cases—or so they say. In most states, DSH payments represent less than 3% of all Medicaid expenditures.

Now hospital groups are lobbying states hard to convince them to expand Medicaid while ignoring study after study that shows how Medicaid fails to deliver on its promises. Health care outcomes for Medicaid patients lag other types of insurance and more than 30% of doctors refuse to accept new Medicaid patients—ironically, putting even more strain on emergency rooms. Medicaid is also extremely expensive for states and the federal government to run and manage costing taxpayers hundreds of billions every year.

The hospitals are trying to lobby their way out of the bad deal they cut. In Arizona, they lobbied Governor Brewer to abuse the provider tax system to fund the Medicaid expansion. The hospitals agreed to be taxed 6% in exchange for access to billions of state and federal funding—a scheme akin to a veritable gold mine.

Too bad, the rest of us lose. The hospitals and their lobbyists untangled their bad deal by driving up costs for other patients and taxpayers. Sadly, Governor Brewer and the state are complicit in the farce. Brewer echoes the hospitals’ talking points by claiming that this deal will save state taxpayers million every year even though spending will go up dramatically.

Hospital groups in Georgia, Oklahoma and South Carolina are pursuing similar strategies trying to copy the “success” of their Arizonan counterparts.

These backroom deals are exactly why the American public distains the President’s health care law. Instead of giving in to insiders like the President did, governors and legislators should reject the crony calls from hospital groups trying to scheme taxpayers to pad their bottom lines.

Medicaid is dominating state budget battles this year. States must decide whether to expand their Medicaid programs to include all individuals making below 138% of the federal poverty level—approximately $30,000 for a family of four. To finance this costly expansion, proponents are relying on gaming the Medicaid system through a highly technical provision known as “provider taxes.”

Medicaid is a joint state-federal program where the federal government pays between 50 percent and 73 percent of all expenses. Provider taxes manipulate this system by maximizing federal contributions while minimizing state contributions.

Here is how the scenario works: Imagine a state that receives a 50 percent match from the federal government and reimburses a hospital $100 for a procedure. The state would pay $50 and the federal government would pay $50. Now, the state increases the reimbursement to the hospital to $106 and inserts a provider tax on the hospital at 6% (the maximum tax rate allowed). The federal and state government are now paying $53 for the same procedure, but the state gets $6 in tax revenue. The state is in essence paying $47, the hospital receives the same $100 and federal taxpayers lost $3. It’s a scam and federal taxpayers are the ones getting hurt. Now imagine this being played out thousands of times a year in a state.

Sadly, abusing the system like this is completely legal. Forty-nine states and the District of Columbia (Alaska is the only exception) use these provider taxes to milk federal taxpayers out of billions of dollars every year.

Politicians across the political spectrum in Washington realize just how badly provider taxes manipulate the system. The President’s last two budgets included provisions that would have eliminated these taxes. In November, Senator Dick Durbin (D-IL) called provider taxes a “charade.” Senator Bob Corker (R-TN) previously introduced legislation to phase-out these harmful taxes.

As states grapple with whether to expand their Medicaid systems, proponents of expansion are pushing provider taxes as a “simple” way for states to finance the increased expenditures. This is the exact strategy adopted by Governor Jan Brewer in Arizona. Governor Brewer’s plan calls for a 6% tax on all hospitals in the state of Arizona. A similar idea is being pushed by providers in South Carolina to encourage Governor Haley to support expansion.

If the last month is any indication, Medicaid will continue to dominate states’ 2013 legislative sessions. Special-interest groups will devise schemes to game this legal, but disingenuous, system to bleed federal taxpayers for unlimited funds. Governors and legislators would be best to ignore these efforts.