Two Virginia Localities Agree to Take Part in Medicaid Loophole Plan

Two Virginia localities this week officially agreed to participate in the state's much debated plan to use the Medicaid loophole to bring in $259 million in federal funds (Washington Times, 11/16). On Nov. 13, the Petersburg City Council voted 5-0 to enter into the plan, in which the state asked seven localities with nursing homes to borrow $500 million to fund the loophole plan (AP/Newport News Daily Press, 11/14). Under the loophole, states pay city- or county-owned care facilities more than the actual costs of health services, receive additional matching funds from the Centers for Medicare and Medicaid Services and then require the facilities to return the extra state funds. The states sometimes pay the facilities a small fee for participating and use the extra federal funds for both health and non-health programs. In January, federal officials issued final rules to close the loophole gradually; following a 60-day delay on implementation ordered by President Bush, the regulations took effect in mid-March (Kaiser Daily Health Policy Report, 10/10). A report from the General Accounting Office earlier this month concluded that CMS improperly approved Virginia's Medicaid loophole plan after publishing the final rules (Kaiser Daily Health Policy Report, 11/5). Joining Petersburg, Bedford County on Nov. 14 agreed to participate in the plan and will receive roughly $6 million in "incentive fees" from the state (Washington Times, 11/16). Of the other five localities asked to participate, one officially rejected the proposal on Nov. 13, while officials from the other four have said they will not participate because of ethical considerations. Petersburg will receive $200,000 to "cover expenses," as well as a $700,000 incentive fee if "Bedford remains the only other locality to join." Petersburg City Manager David Canada, who recommended that the city participate, said, "The process apparently is legal. ... It is incumbent on me to take actions to maximize" the city's funding (AP/Newport News Daily Press, 11/14). But Bedford Supervisor Roger Cheek, who voted against participation, said, "I think it's unethical, and I don't want any part of it" (Washington Times, 11/16).