If a competition were held for the most improved D.C. agency in the past five years, one of the strongest contenders would have to be the city's Medicaid program.

In 1995 the District's Medicaid agency ran a deficit of almost $200 million. The size of the deficit was the subject of controversy throughout the year because the numbers kept changing. The only constant was the growth in expenditures -- between 1990 and 1995, Medicaid spending doubled. "The skyrocketing cost of Medicaid," said Mayor Marion Barry, "was the No. 1 cause of our financial crisis."

But what a difference five years have made. This year, the city is spending less on Medicaid than it did two years ago, even as coverage has been extended to all children and parents in families with incomes under 200 percent of the poverty level. Now, 12,000 D.C. residents have health insurance through this program -- and this was accomplished without limiting benefits or restricting eligibility. How did that happen?

First, while I was director of the District's Medicaid program, the agency brought in some top technical people who found more than 20,000 people on the District's rolls who did not belong there. Some of the people had moved away; others were making too much money or were otherwise ineligible.

The consultants then examined the payment systems and discovered that hospitals, contrary to federal rules, were being paid at 40 percent above cost. With help from the D.C. Hospital Association, this was corrected. Comparable reforms also were implemented for nursing homes and group homes for the mentally retarded, again saving millions of dollars.

Finally, welfare families were enrolled in health maintenance organizations, which has had the effect of halving hospitalization rates as well as providing much greater expenditure predictability.

While this was going on, the Medicaid agency began to clean up a backlog of unpaid bills. In 1995 some 10-year-old bills had not been paid. For some providers, the most recent audited cost report dated to the mid-'80s, which meant that it was impossible to know how much Medicaid owed them. Medicaid audit staff began chipping away at this mountain of work, and most providers now have been paid what they're owed. The Medicaid books are balanced, and its numbers can be counted on.

To be sure, some problems remain. A year ago, disgruntled health care providers told the D.C. Council's Human Resources Committee about payment delays, computer foul-ups and policy disagreements. But even critics acknowledge that the agency is running a tighter ship.

Earlier this year, Mayor Williams put forward an ambitious plan to extend health coverage to many of the District's 80,000 uninsured residents. Much of his plan was rejected by the D.C. Council because of opposition from the city's hospitals and because there wasn't enough time to explain the plan clearly to the community and its political leaders. But some variant of the mayor's plan should be back, and it will rely heavily on expanding Medicaid, which makes sense, because the federal government picks up 70 percent of the cost.

Reforming Medicaid is essential to expanding Medicaid coverage. The District now is in a much better position to take this step and significantly improve the health of its indigent population.

-- Paul Offner

is the former director of D.C. Medicaid.