CMS Says Virginia ‘Improperly’ Obtained $62M in Medicaid Funds for Indigent Care, Must Repay

CMS has informed Virginia that it "improperly collected" $62 million in Medicaid money over the last two fiscal years and will have to repay the government early next year, the Richmond Times-Dispatch reports. The money -- given to the state under the Medicaid disproportionate share hospital payment program -- was primarily used to cover care provided to the uninsured at Virginia Commonwealth University's Medical College of Virginia Hospitals and the University of Virginia Medical Center. In a Nov. 26 letter obtained by the Times-Dispatch, CMS alleged that Virginia "exceeded a two-year limit" under the DSH program for filing losses incurred by hospitals caring for the uninsured. A recent federal audit -- part of a national review of the disproportionate share hospital program -- found that Virginia used "losses from as far back as 1995" when filing for federal reimbursements from the end of 1999 through the middle of 2001. However, Virginia officials said the state has been compounding losses from prior years in its claims for nearly 10 years, and this is the is "the first time federal auditors have disallowed the payments." State officials attributed the federal decision to a "changing political climate in Washington over long-standing accounting practices" states use to glean "as much federal money as possible" from Medicaid. Representatives for the Gilmore administration said the state will appeal the federal decision, a move that allows Virginia to keep funds "pending a final ruling." Administration officials added that they do not think the federal decision will affect the governor's proposed 2002 budget. The state has a $173 million deficit in its Medicaid budget for this year and a projected $600 million shortfall in the next two-year budget. Eric Bell, director of the state Department of Medical Assistance Services, said that if the federal decision is upheld, it would cause "long-term problems for Virginia's budget and its ability to cover" indigent care (Martz, Richmond Times-Dispatch, 11/29).

Two-Locality Loophole
In other Virginia Medicaid news, the Nov. 28 deadline by which localities had to notify the state whether they intended to participate in the state's planned use of the Medicaid loophole has passed, and only Bedford County and Petersburg have chosen to participate, the Richmond Times-Dispatch reports (Hickey, Richmond Times-Dispatch, 11/29). 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. Virginia plans to use the loophole to gain $259 million in federal funds to help balance its state budget (Kaiser Daily Health Policy Report, 10/10). If all seven counties selected by the state to participate had agreed to be part of the loophole plan, they would have divided $6.5 million in "incentive fees." But because only Bedford County and the city of Petersburg have agreed to participate, they will split the funds. Bedford will receive $6.1 million and Petersburg will receive $390,000, amounts based on the size of each locality's nursing facility. In addition, the state had offered each of the seven counties $200,000 as an incentive to cover "legal and banking fees"; now Bedford and Petersburg will split the total $1.4 million evenly (Richmond Times-Dispatch, 11/29).