Administration Provides Budget and FMAP Updates

VHCA (8/20/2010)

Governor Bob McDonnell told members of the General Assembly money committees Thursday morning that Virginia finished the last fiscal year with a surplus of $403.2 million, but urged them to continue to "budget conservatively going forward."  The year-end balance was almost double an initial projection the administration reported in July. Tax collections for the fiscal year ending June 30 exceeded the state's budgeted projection by $228 million, and unspent balances by state agencies added another $175 million to the surplus.

Due to automatic triggers utilized in the budgeting process, the vast majority of the surplus is earmarked under the new state budget that took effect July 1. State workers, who have not seen any pay increase in nearly three years, will receive a 3 percent bonus in December that will cost $82.2 million. Public education, transportation and the state's water quality improvement initiative will each receive some of the surplus funds.

For Virginia nursing facilities and other health care providers who serve Medicaid beneficiaries, Secretary of Finance Ric Brown outlined how the Administration will use additional Federal Medical Assistance Percentage (FMAP) funding made available through H.R. 1586 signed into law last week.  The legislation will provide states $16.1 billion through a phased-down enhanced match - 3.1 percent beginning the first calendar quarter of FY 2011, then dropping to 1.2 percent in the second calendar quarter.

According to Secretary Brown, Virginia is projected to receive $265.6 million in enhanced FMAP funding through June 30, 2011 and must use $177.5 million to fund legally required restorations for cuts approved by the General Assembly that are not permitted by the Center for Medicare and Medicaid Services (CMS).  The Department of Medical Assistance Services (DMAS) will be directed to eliminate the 3 percent rate cut (both operating and capital) for nursing facilities for the period from October 1, 2010 through June 30, 2011.  This will leave providers with approximately one-fourth of the 3 percent cut imposed by the General Assembly for state fiscal year (SFY) 2011.  Alternatively stated, the full 3 percent cut will be imposed on Medicaid dates of service between July 1, 2010 and September 30, 2010 and removed effective October 1st of this year.

To illustrate, under the 2010-2012 Budget with no additional FMAP funding, facilities would be subject to a 3 percent reduction in both SFY 2011 and 2012.  On average, this cut amounted to $4.55 per Medicaid patient day in 2011.  While we are waiting on additional information and confirmation from DMAS, it appears that the average per diem cut remaining will be in the range of $1.15 per day in SFY 2011 - or 25 percent of $4.55.  Absent additional budget actions, we believe the 3 percent cut will be reinstituted effective July 1, 2011.

While this is good news for the state fiscal year ending June 30, 2011, we remain concerned about funding for SFY 2012.  Secretary Brown indicated that there will be approximately $17 million in extended enhanced FMAP funding that will be available in SFY 2012.  No specific plans were announced for how these funds will be utilized. 

In addition to the rate restoration for nursing facilities, Secretary Brown’s presentation also indicates that the SFY 2012 Auxiliary Grant reduction of $3,036,672 will be eliminated and that coverage and funding in both SFYs 2011 and 2012 for optometric services (routine and medical eye care) for adult Medicaid patients in Virginia will be reinstated and restored. 

Although Virginia finished the last fiscal year in the black, the development hardly signals the end of the state's fiscal challenges. We will continue to work with both the Administration and members of the General Assembly to encourage them to restore Medicaid funding to levels that allow providers to deliver quality health care services and will be updating members as additional information becomes available.