Virginia Budget Update

VHCA (1/9/2009)

VHCA staff members are continuing to review state budget documents and meet with legislators, legislative staff and members of the Administration to ensure that state policy makers fully understand the impact of existing and proposed budget cuts on Virginia facilities.  Currently we are focused on four primary areas that impact Medicaid funding for nursing facility care:

First, we are finalizing our financial impact analysis intended to highlight the tremendous stress that facilities will be exposed to should cuts of the magnitude proposed by the Governor in December remain in the budget.  Once completed, this analysis will allow us to quantify the impact of Medicaid funding cuts by individual legislator and will assist facilities in sharing their own specific concerns with their legislators.  In broad terms, the proposed elimination of inflation and the carry over reductions from last year under consideration for state fiscal year (SFY) 2010 total $40.1 million or an average of approximately $6.25 per resident per day.

Second, based upon numerous discussions over the past several weeks, we have serious concerns about the intent of Governor Kaine’s Administration with respect to the proposed SFY 2010 budget cut for nursing facilities.  Specifically, there appears to be general consensus that the intent of the proposed cut for nursing facilities was limited to the removal of our payment inflator during the second year of the current biennium budget.  As shared with members last month, the second year component ($11.7 million) of last years payment cut was not removed from the budget despite the fact that its origins stemmed from language that capped the inflator at two percent in each year of the biennium.  We have received a verbal commitment from a key member of the House Appropriations Committee to sponsor a budget amendment removing the SFY 2010 portion of the payment cut imposed in the 2008 Session.  While this commitment is encouraging, getting approval for a budget amendment is difficult in good economic years and will be very difficult in 2009.

Third, in addition to the specific funding cuts targeted at nursing facilities, the Governor’s Budget Bill contains language which appears to reverse a long-standing provision that automatically funds within the introduced budget inflation adjustments for nursing facilities, hospitals and several other Medicaid provider groups.  Without any discussion, the Administration has added language that stipulates the following: “The forecast shall include utilization and enrollment, but shall not include provider inflation adjustments, rebasing of provider costs or any other cost adjustments as required by law or regulation.  Inflation and cost adjustments unrelated to utilization and enrollment shall be forecast separately and submitted as a separate budget request as part of the development of the executive budget.” 

While the Governor and the General Assembly always have the authority to remove funding for our inflation and rebasing adjustments, the absence of these components from the initial forecast signals a far greater challenge to provider organizations that efforts will be necessary every year to ensure that these adjustments are funded.  VHCA has received a commitment for the introduction of a budget amendment removing this new language and restoring the funding provisions previously in place.

Finally, despite the overall gloomy budget outlook for the Commonwealth, there is considerable hope that the incoming Obama administration will move quickly to develop an economic stimulus package that includes significant state-level relief for various core services including Medicaid.  Unfortunately, the timing for approval for the President-Elect’s plan will likely mean that the General Assembly will not have the benefit of these potential dollars in time for the finalization of the state budget. 

During the 2009 General Assembly session, Medicaid providers, including nursing facilities, will likely face two additional assaults in their quest for restoration of dollars associated with cuts already in effect or proposed.  First, the Governor’s budget proposal includes an increased cigarette tax that is intended to minimize the amount of Medicaid cuts necessary to balance the budget.  This tax proposal will not likely receive approval in the General Assembly necessitating the need for $148 million in additional cuts – a significant portion likely to be obtained from further provider Medicaid cuts. 

Second, the overall budget shortfall of $2.9 billion is widely believed to be understated.  Indeed, there is a constant stream of economic reports and news that support the fact that the economy is still in decline.  A formal update to the state’s economic forecast is expected later this month.  Should that picture be consistent with ongoing assessments, the shortfall is likely to be increased along with the need for additional expenditure cuts.

Given these additional challenges, it is critical that Medicaid providers obtain binding commitments from the Administration and the General Assembly that if and when federal economic stimulus funding is received the first use of these funds is to fully restore provider payment cuts implemented in the current biennium budget.  VHCA has requested support for a budget amendment that would make the restoration of dollars associated with provider payment cuts in SFY 2009 and 2010 the top priority.  We are working to finalize specific language that would provide the highest level of assurance and will work to have the amendment drafted and filed within the next week.