Virginia to Go Ahead with Medicaid Loophole Plan; Gives Localities Final Chance to Participate

Virginia's chief health official said last week that the state will move forward with its plan to use the Medicaid loophole to gain $259 million in federal funds to help balance the state budget, despite a decision by the Bush administration to gradually close the loophole, the Richmond Times-Dispatch reports (Martz/Hickey, Richmond Times-Dispatch, 11/23). Under the loophole, states pay city- or county-owned care facilities more than the actual costs of health services, receive additional matching funds from CMS 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 (Kaiser Daily Health Policy Report, 10/10). Centers for Medicare and Medicaid Services Administrator Tom Scully said last week that the agency this winter will end the use of the loophole for 14 states -- though not Virginia -- and will phase it out completely by 2010. But Virginia Secretary of Health and Human Resources Louis Rossiter said that the decision will "have no effect" on the state's plan to use intergovernmental transfers to draw the federal funds, a move that is expected to be completed on Dec. 7 (Richmond Times-Dispatch, 11/23).

Time to Change
Virginia's plan to use the loophole would require the cooperation of local officials, but many of them have "refused to participate," saying that use of the loophole is "unethical" (Kaiser Daily Health Policy Report, 11/19). Five localities have chosen not to participate, but two have agreed to take part in the plan. The two localities -- the city of Petersburg and Bedford county -- will lend the state $500 million, which the state will "repay almost immediately and claim the payments as reimbursements for Medicaid services." The state will then receive the $259 million in federal matching funds and give the counties incentive payments totaling $6.4 million and expense reimbursements of $200,000 each. The five localities that have chosen not to participate will have until Nov. 28 to change their minds. Rossiter "confirmed" that the administration of Gov. Jim Gilmore (R) has included the additional funds in its "formal revenue estimate" that will be used to complete the state's amended budget. The administration has not said how it will spend the extra funds, although many state and local officials say they should go toward health services. The state has a projected $1.2 billion budget shortfall this fiscal year (Richmond Times-Dispatch, 11/23).