SALEM (AP) - Auditors say that Oregon may need to repay the federal government more than $200 million for allegedly making improper use of a loophole in Medicaid rules to get extra funds.

Social services officials disagree with the state auditors' conclusions, which deal with regulation interpretations and paperwork, and say they have legal advice backing them up.

The dispute involves a Medicaid provision that is being phased out. It has allowed states to draw extra federal funds through an accounting maneuver.

More than half the states have taken advantage of the provision, which allows them to list the cost of medical services at the maximum rates allowed at publicly owned hospitals and nursing home facilities. Oregon has nine public health districts that operate facilities.

The state then can bill the federal government's share for Medicaid patients at the inflated rate, even though the state has arrangements with private health care providers to pay less than the maximums.

To make the maneuver legal, states transfer Medicaid funds to the public hospital or nursing home. The money stays there long enough to draw the inflated federal matching money and then returns to the states, which have used the funds for a variety of programs.

The Legislature spent $249 million of Oregon's extra funds on state school support in the current budget, and $93 million went to the Oregon Health & Science University.

The federal government pays about 60 percent of Medicaid costs in Oregon, and the state pays 40 percent.

The Bush administration is moving to phase out the practice, which officials say would save the federal government $9 billion over five years.

Oregon's share is estimated to drop to $73 million in the 2003-05 budget and to less than $4 million by 2005-07.

Neal Witherspoon in the secretary's of state's Audit Division said an audit report to be given to the state Human Services Department in a few days questions on two grounds the state's use of $244 million of the extra Medicaid funds for 2001 and 2002.

"We didn't believe there was sufficient documentation to justify expenditures," Witherspoon said. And he said auditors think the state may have drawn too much extra money after the federal government began imposing limits on the payments.

Margy Johnson, assistant Human Services director for finance and policy, said the agency agrees the "paper trial" could have been better.

She said the other dispute involves how calculations were made after federal regulations were changed in 2001.

The state attorney general's office last month concluded that the department complied with federal regulations in handling the payments, Johnson said.

She said the agency's "methodology" also was agreed to by the Legislature's Fiscal Office and federal Medicaid officials.